Q2 GDP hike boosts faster PH recovery prospects

The Philippines’ positive 11.8% second quarter gain in its gross domestic product (GDP) is expected to push the country’s 2021 GDP expansion to nearly 5% and towards a faster economic recovery.

The Market Call, the joint monthly publication of the First Metro Investment Corporation (FMIC) and the University of Asia and the Pacific (UA&P), said latest reports on exports, imports, manufacturing, and government spending, among others, are encouraging indicators of such prospects.

The Market Call report said the country’s overall full-year growth outlook “has brightened” following the release of the second-quarter GDP figure, which ended the five consecutive quarters of contraction.

The report, however, said quarter-on-quarter GDP data slipped by 1.4 percent in April to June this year while an economic hit is expected from recent lockdowns. 

“These lead us to think that the low side of (or slightly below) our 5-6 (percent) FY (fiscal year) projection would land us in the safe zone,” it added. 

The report further said manufacturing continues to rise in the third quarter, with the Purchasing Managers Index (PMI) at 50.4, lower than the 50.8 last June. An index higher than 50 indicates expansion while an index below 50 shows otherwise. 

It noted that exports remain on expansion territory even as the July year-on-year figure slowed to 17.6 percent. “We note, however, that in terms of export levels (at US$6.5 billion), it greatly exceeds levels in January and February 2020, as well as those of June 2019,” it added.

Boosting government expenditures are those related to infrastructure projects, which hopefully will be sustained ahead of the May 2022 national elections. 

The report also noted that the rate of price increases continue to post slower year-on-year figure, with the July figure at 4%, the lowest so far this year and is now within the government’s 2% to 4% target band.

“Headline inflation may not drop below 4% in the third quarter because of the low base a year ago, but with crude oil prices sharply falling in August, and food prices stabilizing, it will likely go below that threshold early in the fourth quarter,” it added. 

Domestic inflation deceleration rate may result in another monetary policy easing in the coming months but the Market Call report forecasts a cut in the country’s reserve requirement ratio (RRR) instead of the key policy rates.

“The good Q2 GDP print will see it happening only with negative macroeconomic data, which cannot be ruled out due to the new quarantine restrictions,” it said. 

The Bangko Sentral ng Pilipinas’ (BSP) Monetary Board (MB) slashed the central bank’s key policy rates by a total of 200 basis points last year to help buoy the domestic economy from the impact of the pandemic.

BSP’s overnight reverse repurchase (RRP) rate is now at record-low of 2%, even as it also cut its RRR by as much as 200 basis points to ensure that financial institutions would have adequate funds for lending to help boost the country’s economic activities. 

The report, however, cited the slower employment gains expansion last June and projected it to further shrink in  July as the government imposed tighter quarantine restrictions in Metro Manila due the sharp infection rise of the Covid-19 Delta variant.