Tuesday, 1 June 2010

Philippine Q2 GNP may reach double digits

Full-year growth seen higher
Written by Cai U. Ordinario and Mia Gonzalez
Business Mirror

WITH the stunning 7.3-percent gross domestic product (GDP) growth registered in the first quarter, the First Metro Investment Corp. and University of Asia and the Pacific Capital Markets Research (FMIC and UA&P Capital Markets Research) said on Monday their 4.2-percent growth forecast for 2010 may be breached.

In a separate development, Palace officials also said on Monday the economic managers are confident of reaching double-digit GNP growth levels in the second quarter based on the “encouraging trend” set in the first quarter, when the gross national product grew by 9.5 percent, and on indications that the global rebound would be sustained.

In the May issue of The Market Call, the FMIC and UA&P Capital Markets Research said the economyís growth momentum in the first quarter will continue in the succeeding quarters with the beginning of the Aquino administration.

The 7.3-percent GDP growth in the January-to-March period was attributed to the recovery in the manufacturing sector and election spending due to the May 10 polls.

“The economyís growth momentum will likely carry through the succeeding quarters, as more new jobs give fresh impetus to consumption spending, while a new president may spur investments, and exports remain robust. GDP growth may slow down a little as the industrial sector normalizes, but the agricultural sector should recover from El Niño in H1 [first half], and so our full-year forecast of 4.2 percent will probably be exceeded,” FMIC and UA&P Capital Markets Research said.

Factors that would support this growth include benign inflation. The research group said low inflation will likely be sustained since crude-oil prices have stayed below $70 per barrel in the first two weeks of May, something not seen since September 2009.

With this, the FMIC and UA&P Capital Markets Research remains confident the Bangko Sentral ng Pilipinas (BSP) inflation target of 4.5 percent +/- 1 percent for 2010 will be met.

“Monetary policy will remain on hold for Q3 and even up to Q4, as inflation remains on target, while growth is threatened by the euro-zone crisis. Nonetheless, the BSP has room to cut deposit rates on SDAs [special deposit accounts] if it wants more of these funds to move into infrastructure and housing spending,” the group said.

The agriculture sector is also on its way to recovery as El Niño ends, said the research group. It noted that El Niño had accounted for the farm sectorís 2.5-percent contraction in the first quarter.

Data showed that the contraction of palay, corn and sugar cane were the major contributors to the contraction in the growth of the sector. Palay shrank by 11.4 percent; corn, 16.8 percent; and sugar cane, 4.6 percent.

The FMIC and UA&P Capital Markets Research also said despite the higher-than-expected first-quarter deficit of P134.2 billion, the full-year budget deficit of P293 billion “remains attainable.”

The group explained that with the 7.3-percent GDP growth in the first quarter, tax revenues would also increase. The group also said the focus of the incoming administration of ìplugging leakagesî will help keep the deficit within the target set by the interagency Development Budget Coordination Committee.

In the second half of the year, the FMIC and UA&P Capital Markets Research sees exports maintaining its double-digit growth and overseas Filipino worker (OFW) remittance growth growing at around 5 percent to 8 percent.

Investments will also likely pour in in the second half, owing to the change in administration and the introduction of new economic policies. This, however, will cause a slight appreciation in the peso.

“Foreign investmentsóboth portfolio and directóare likely to perk up later in the second half as the economic policies of the new administration becomes better defined,” the group said.

“The peso will remain under siege as long as the euro-zone instability remains and risk aversion reigns, but foreign investments in H2 may again bring it to an appreciation mode,” it added.

Palace upbeat on GNP growth in Q2

Elaborating on the Arroyo administration’s upbeat outlook about hitting double-digit growth in the GNP in the second quarter of the year, Deputy Presidential Spokesman Gary Olivar said: “I would think that the pace of the global recovery would be a major determinant there. Right now, the global recovery seems to be moving and perhaps even accelerating although there are some bumps on the road like the debt crisis in some European countries, but hopefully the trend will continue to be upbeat and upward,” he said.

Director Raymundo Talento of the National Statistical Coordination Board (NSCB) Economic Statistics Office said the impact of campaign spending, which contributed 0.4 percentage point to the GDP in the first quarter, is expected to be felt in the second-quarter as well, since April and the first week of May are part of that period.

”If we will try to observe how the second quarter went, you will notice that April is part of the second quarter and that is still the campaign period and definitely I think it will boost the second-quarter growth. Plus the...positive attitude that our industry players now are having,” Talento said.

Asked whether second-quarter GDP growth is likely to surpass the 7.3-percent growth in the first quarter, the NSCB official said: “The way we see it, it might be but we still have to see the information.”

Olivar said the economic momentum is “something we are bequeathing to the next administration, whether they recognize it or not, whether they would credit us for it or not, it’s already there.”

On skepticism about the 7.3-percent GDP growth in the first quarter, Talento stressed that the NSCB is a professional and “apolitical” organization using an internationally-prescribed methodology to monitor the economy, and that it has a “history of  actually understating our own estimates.”

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