THE Philippine economy is poised for a stark rebound and may grow by 4.5 percent in the first quarter.
According to First Metro Investment Corp. (FMIC) and the University
of Asia and the Pacific recovery of the export sector, sustained robust
spending by the government, and moderate growth in remittances will
boost the economy in the first three months.
“After a disappointing Q3 performance due to great floods, we are
now seeing clearer signs of a relatively robust recovery,” the
investment bank and the academic institution said in a joint
publication, Market Call.
In the third quarter of 2009, the economy, measured in terms of
gross domestic product, decelerated to one of its slowest growth on
record at 0.7 percent. It accelerated to 1.8 percent in the fourth
quarter.
FMIC and UA&P said growth will further accelerate in the first
quarter, consistent with the expected recovery of the global economy.
As demand from the United States and other major export markets makes a rebound, so will export income of the Philippines, the two said.
Latest data from the National Statistics Office showed that
In December 2009, exports recovered from the contractions felt
earlier in the year and grew by 23.6 percent to $3.3 billion. In
November, exports rose by 5.7 percent.
FMIC and UA&P also said the government will likely maintain huge
spending in the months leading to the May elections, thus providing
some stimulus to the economy.
They added that continued growth in remittances, which support
household consumption, would also drive the economy. Remittances may
grow between 4 and 6 percent in the first quarter, they said.
Also, yields on government securities are expected to be stable over
the next three months with the domestic financial market remaining
amply liquid, FMIC and UA&P said.
The two institutions also revised their December inflation forecast from the 3.9 percent set the previous month.
They said the rise in consumer prices could grow at a faster clip, but it would still remain within benign levels.
FMIC and UA&P expect inflation to average at 4.3 percent in the
first quarter, within the government’s official full-year target range
of 3.5 and 5.5 percent.
“Crude oil prices have remained stable ... despite the unusually
cold winter in the West, while food supply will continue to be
adequate,” they said in the publication.
Monetary policy will likely be unchanged at least until March, with
the policy rate of the Bangko Sentral ng Pilipinas remaining at a
historic low of 4 percent, they said.
FMIC and UA&P said that although domestic output grew by about
one percent in the fourth quarter of 2009, demand for financial assets
had not yet gone up.
“With ample liquidity, especially with the ongoing election campaign, yields are likely to be steady,” the report said.
It added that any decline in yields may be limited by unexpected
changes in consumer prices, although inflation figures are so far
running in line with forecasts.
In the three months, interest rates on the bellwether 91-day
Treasury bill is expected to hover at 3.5 percent, while those for the
10-year Treasury bond will stick close to 7.5 percent.
“Market players may prefer the short end of investment durations,”
the two said in their report. “Fortunately, high yields in the long end
may continue to entice investors willing to take duration risk.”
Further, the report said that the government could borrow a total of
P100 billion from domestic lenders through the issuance of T-bills and
T-bonds.
With the budget deficit seen to hit P293 billion this year, the
government is also expected to float a total of P192 billion in foreign
currency-denominated bonds, including the $1.5 billion, or P67 billion,
raised in January.
The global bond market is so far showing continued confidence in
Philippine sovereign issuances, with the latest float even cited by The
Asset magazine as “the best sovereign issue.”