FMIC, UA&P upbeat on economic growth

THE momentum from better-than-expected third-quarter growth will continue for the rest of the year and lead to a full-year expansion of 5.8 percent, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said.

The outlook by FMIC & UA&P economists, unchanged from a previous report and below the government’s 6.0- to 7.0-percent target for the year, was premised on continued infrastructure spending and increased consumption due to lower inflation.

Economic growth accelerated to 5.9 percent in the third quarter, picking up from the second quarter’s lower-than-expected 4.3 percent.

All economic sectors expanded, and the rise was said to have been primarily due to government spending having grown by 6.7 percent following a 7.1-percent contraction three months earlier.

Full-year gross domestic product (GDP) growth, however, remains below target at 5.5 percent, and many analysts have said the goal appears to be out of reach. The government, however, insists that the lower end is still achievable.

The view that “revenge spending” has ended “appears overstated,” UA&P and FMIC economists said, adding that government spending was likely to also stay robust despite concerns about the country’s debts.

“All told, while the possibility of a slightly slower GDP uptick in the fourth quarter exists, full-year growth should hold at 5.8 percent, which still exceeds most forecasts,” they said.

Inflation, meanwhile, is expected to breach the Bangko Sentral ng Pilipinas’ (BSP) 2.0- to 4.0-percent target and average 6.2 percent this year.

“We now expect YoY (year-on-year) inflation to go within the BSP’s target by Q1-2024, but may again exceed the ceiling if food prices remain elevated,” the economists said.

Rice prices remain an upside risk if the government fails to address the impact of emerging El Niño droughts, they noted.

Still, the economists said inflation was “definitely on a downward spiral” and that the central bank could start cutting key interest rates by the first quarter of next year.

The BSP policy rate currently stands at 6.5 percent, the highest since 2007, following cumulative rate hikes totaling 450 basis points beginning in May last year.

Monetary authorities kept rates on hold earlier this month but warned that further tightening could be ordered should inflation rise anew.