Economists at First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) maintained their 6-percent gross domestic product growth forecast this year, despite a “disappointing” growth in the first quarter of 2024.
“While Q1-2024 GDP growth of 5.7 percent fell short of market expectations [5.9 percent], we retain our full-year forecast of 6 percent as we expect an acceleration starting Q2,” FMIC and UA&P said in their latest Market Call report.
“This finds support from continuing elevated levels of employment, recovery of the Manufacturing sub-sector, weakening inflation and a slightly less negative external sector account,” they said.
The economists said they are adopting cautious optimism for the rest of the year.
“For the rest of the year, elevated employment levels, expected ramping up of government spending, and inflation maxing out at slightly below 4 percent up to July, dropping closer to 3.0 percent by August and a likely policy rate cut of 25 basis points [bps] by BSP in Q3 should put domestic demand back into the fast lane,” the FMIC-UA&P report said.
“Thus, we project a mild acceleration in GDP growth to 5.9 percent in the second quarter, but pace will likely hasten in the second half to bring full year GDP growth to 6 percent with a slight upside bias,” it said.
The Philippine economy grew 5.7 percent in the first quarter, below the government’s target range of 6 percent and 7 percent this year.
“Moving forward, we don’t see a repeat of the first quarter downbeat. High employment levels, likely heightened government spending [less saddled by interest payments] and peaking inflation in Q2 should spur more domestic demand,” the report said.
The economists expect inflation to accelerate in the second quarter to an average 3.9 percent from 3.3 percent in the first quarter largely due to base effects.
“Thus, we see it go closer to 3 percent by August and the rest of the year. In fact, BSP adjusted its inflation forecast to 3.8 percent in its May policy setting meeting from 4 percent it had projected earlier,” it said.
“Rice prices in May will likely slide by -1 percent month-on-month, while crude oil should fall by some -7.0 percent,” it said.
The government targets an inflation rate of 2 percent to 4 percent this year.