'Growth slowed in Q1 but recovery expected'

Posted at 04/03/14 7:50 AM

MANILA - High commodity prices likely slowed the pace of the country’s economic growth in the first quarter of 2014, according to the First Metro Investment Corp. and University of Asia and the Pacific (FMIC and UA&P) Capital Markets Research.

UA&P senior economist Victor Abola said the think tank projects a growth of only 6 percent in the first quarter. This is slower than the 7.7-percent growth posted in the first quarter of 2013 and the 6.5 percent posted in the last quarter of 2013.

However, the FMIC and UA&P Capital Markets Research expects some recovery in the succeeding quarters. The projected recovery will largely be caused by the reconstruction and rehabilitation of Supertyphoon Yolanda-affected areas.

“The emerging trend is supportive of our view of a slightly weaker first-quarter GDP performance, but which will accelerate thereafter, as the reconstruction work and the positive impact of the peso depreciation make themselves felt and bring growth to equal or even better than 2013,” the FMIC and UA&P Capital Markets Research said in the March issue of Market Call.

The think tank expects inflation to average 4.2 percent before posting lower rates in the second and third quarters. In December 2013 and January, inflation was at 4.1 percent and 4.2 percent, respectively.

Apart from higher inflation, the think tank said interest rates have eased slightly, as the financial markets tweaked its adjustment to the United States Federal Reserve’s tapering of long-term bond purchases by $10 billion a month starting January 2014.

It added that crude oil prices have been at a relatively narrow trading range, despite the Ukraine crisis in the East, the Egypt-Syria turmoil in the Middle East, and popular unrest in Venezuela and Argentina.

What will buoy the country’s economic growth in the first quarter will be domestic demand, especially with the depreciation of the peso. The think tank added that the peso is expected to weaken further to reach an exchange rate of around 45.96 to the dollar by May.

The weaker peso will benefit millions of overseas Filipino workers (OFWs) and their families as well as exporting firms. Further, the think tank said government spending, particularly for Yolanda-affected areas, will keep domestic demand and economic growth healthy.

“A weaker currency bloated the peso value of the remittances resulting to a 17.4 percent year-on-year growth [ninth consecutive high] in December. The solid growth of remittances from OFWs, coupled with peso depreciation, remains supportive of economic activity in the country. Note that cash remittances accounts for 8.4 percent of the country’s gross domestic product [GDP] in 2013,” the think tank said.

“The continuing gains of the US economy and the wider differential between Philippine inflation and US inflation rates, as well as technical indicators, enable us to maintain our basic outlook that the peso will have a depreciation bias, albeit at a slower pace than that seen since H2 [second semester] 2014,” it added.