Emerging regional economic powerhouse

Our favorable outlook for the Philippine consumer is further underpinned by an improving labor market.

Moody’s Analytics said the country has solidified its reputation as regional growth leader with sustained economy, as it predicted the Philioppine’sGross Domestic Product (GDP) expanded by 6.6 percent in the second quarter.

It said headline inflation only slightly tempered the second quarter growth from the 6.8% GDP rise in the first quarter as Moody’s said the country’s strong consumption is being fueled by robust rise of remittances from Overseas Filipino Workers (OFW) and “a firm labor market.”

Moody’s Analytics economist Veasna Kong said the level of consumption in the country is still healthy but noted that it is likely to be softer compared to the past two years. “For Q2, GDP growth likely slowed over the year compared to Q1, in part due to the tax reforms and its impact on consumers,” he said.

Earlier, Fitch Group unit Fitch Solutions projected the country’s consumer spending will continue to rise with the growth of the labor market and strong remittances.

“Our favorable outlook for the Philippine consumer is further underpinned by an improving labor market,” Fitch Solutions said and added household consumption would continue to rise until the end of this year and beyond.

According to Kong, “cycles in consumer price inflation can at times lead those in consumer spending, so there is sometimes a lag between inflation developments and consumption growth.”

“Over 2018, we expect consumer spending growth to come in weaker than in 2017,” he said.

Amid this projection, the report said investment is expected to remain strong “as the government boosts infrastructure development” and external demand to still be solid.

These factors were seen to have primary contributions to economic output from April to June this year but warned that “rising pressures will need watching.”

Headline inflation is at a five-year high and is well above Bangko Sentral ng Pilipinas’ (BSP) target band of two to four percent, which has prompted two policy rate hikes this year.

BSP officials earlier said the hikes were meant to support growth while ensuring price stability in the country.