Metrobank Group forecasts higher H2 growth

Local output growth measured as the gross domestic product was seen picking up in the second half of the year, accelerating higher than the 6 percent posted in the May-to-June quarter, the investment banking arm of the Metrobank Group said on Wednesday.

“We expect faster growth in H2 anchored on speedier NG disbursements and higher peso equivalent of the remittances. Robust capital investments and stronger infrastructure and capital outlay and better exports should, likewise, push further the expansion significantly better than growth in H1,” analysts at the First Metro Investment Corp. (FMIC) said on Wednesday.

Their sustained optimism constrasted against developments in the first half when, despite double-digit growth in investments, durable equipment purchases and foreign direct investment support, growth in the second quarter slowed to only six percent from 6.6 percent in the first quarter.

These activities should have pushed output growth still higher in the second quarter but in the end they did not, various analysts and economist said as soon as data were released by the Philippine Statistics Authority.

But according to FMIC, a number of growth-boosting events in recent months help make the case for a faster-than-anticipated second half.

One, spending on infrastructure and capital outlays surged 38.5 percent in the first half, resulting to higher disbursements in the public sector.

Two, capital goods imports grew by 10.1 percent in May amid gains in big-ticket components.

Three, liquidity or M3 significantly slowed to 11.7 percent in June from 14.3 percent in May, indicating sufficient peso liquidity in the system to fuel the country’s growth requirements but at a level allowing for surging inflation to moderate over the policy horizon.

This relates to the period when headline inflation busted the official ceiling of just four percent to 4.3 percent in March, has not looked back since and has in fact stood higher at a 10-year high of 5.7 percent in July.

FMIC analysts said the decision of the Bangko Sentral ng Pilipinas to increase the policy rate by 50 basis point to four percent “should take the heat off from inflation, interest rates and the exchange rate, especially since it has expressed readiness to make further increases if needed.”

“Infrastructure and capital outlays should continue to expand at a rapid pace while durable equipment investments and manufacturing output shall remain robust. We do expect inflation to peak in August as food prices normalize and crude oil prices receding as Q3 progresses,” FMIC said of the base upon which they anchor the expectation of higher growth in the second half.

They acknowledged that H1 growth surprised market watchers by falling below-consensus at only six percent in Q2: “Nonetheless, the Philippines remained one of the fastest growing economies in Asia.”

They also said domestic demand grew by more than 10 percent, driven in large part by double-digit expansion in capital formation that expanded by 20.7 percent during the period.

“On the supply side, the services sector recorded the fastest growth of 6.6 pecent, slower than the 6.8 percent uptick in Q1. Huge gains in public administration and compulsory social security (up +15 percent) from the previous year’s 8.4 percent buoyed the sector’s strength. Strong increases also came from financial intermediation (+8.7 percent), transport, storage and communication (+6.2 percent) and trade and repair of motor bvehicles, motorcycles, personal and household goods (+6.1 percent),” the analysts noted.

“We think that the national government’s strong push on the ‘Build, Build, Build’ program and other various social reforms to counter the inflationary effect of the TRAIN law will drive economic growth faster in Q3 and Q4. Investments add to productive capacity and will therefore add to future growth,” FMIC said.