“Positive economic fundamentals still surround the country, reinforcing our view that the economy will likely expand faster in Q2.

Worries over stampeding inflation should not be enough to dampen local output growth measured as the gross domestic product (GDP) quickening at a faster pace of 7 percent in the April-to-June quarter, according to financial services firm First Metro Investment Inc. or FMIC.

The forecast improves on actual output growth averaging 6.8 percent in the January-to-March period, driven in the main by bulked up growth in infrastructure spending, capital goods imports, resurgent manufacturing output and foreign direct investments (FDI) that tell on the continued interest of foreign businesses on the economic future of the Philippines.

According to FMIC, the investment banking unit of the Metropolitan Bank and Trust Co. (Metrobank), all these numbers should overcome some of the negative sentiments generated by above-consensus inflation outcomes in recent months.

“Positive economic fundamentals still surround the country, reinforcing our view that the economy will likely expand faster in Q2, from 6.8 percent in Q1,” it said.

This pertained to the disbursement of public funds ramping up 28.5 percent in May after having actually surged 95.9 percent the previous April

Manufacturing sector output also expanded just a shade lower than 20 percent in May from 29 percent the previous April.

This was also the period when headline inflation has everyone worried by pushing still higher to 5.2 percent from only 4.6 percent in May as the food component of the consumer price index as well as gains in the price of oil remain elevated.

As a result, the policy-making Monetary Board of the Bangko Sentral ng Pilipinas had to make another 25-basis point adjustment in the rate at which it borrows from or lends to banks on 20 June to cool inflation and inflation expectations.

“More recent positive real sector data, along with robust gains in jobs creation and bullish consumer sentiment in Q2 and Q3, point to a faster 7-percent growth trajectory in Q2. We maintain our view that inflation will have little upside and should taper off in Q3,” FMIC said.

As a result, inflation this year will likely average above target and prove as low as 4.2 percent to no more than 4.5 percent.

As for the country’s gross international reserves (GIR), which ensures the Philippines has sufficient foreign currency buffer to pay for maturing debt and finance the ongoing capital imports needed to sustain long-term growth, was forecast to lift back to $80 billion from more or less $77 billion at the moment.

The foreign currency reserves have diminished in recent months as a result of the so-called open market operations of the BSP that forms part of its desire to keep the exchange rate stable as well as national government having to pay down maturing foreign debt.

FMIC also projects a weaker peso towards yearend averaging 53.9 per dollar versus 53.45 at the moment based on BSP data.

The peso has steadily deteriorated from 50.509 per dollar in January to 51.786 in February, 52.068 in March, 52.099 in April, 52.195 in May, 53.04 in June and 53.451 from month to date.

The sovereign credit watchers Moody’s Investor Service as well as Fitch Ratings only recently affirmed the country’s credit standing and its sovereign debt notes still classified as investment grade.

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.