The country’s gross domestic product (GDP) output growth is expected to recover in the second half of 2023 and should grow by 5.2 percent in the third quarter and above six percent in the fourth quarter on the back of more “vigor” in the manufacturing sector and higher government spending, said economists.

Based on the latest “Market Call” (September 2023) report of a Metrobank subsidiary, the GDP growth pace in the months of July to September will be an improvement from the previous quarter while the fourth quarter will have a “faster” growth as well.

Meanwhile, the estimated five percent to 5.2 percent third quarter growth is higher than actual second quarter GDP of only 4.3 percent.

“This would bring full year GDP growth to 5.5%, a bit below the 6%-7% target of the government,” said First Metro Investment Corp. (FMIC) and its research partner, University of Asia and the Pacific (UA&P).

“We expect Manufacturing and Construction to take the lead in the Industry sector while Transportation & Storage, Accommodations & Food Services and Trade should spearhead in the Services sector recovery in Q3,” it added.

For the months of July to September, the recovery will come from elevated government spending which the report said should provide the stimulus “even as we expect a strong rebound in employment and consumer spending starting September” while the industry sector expansion “will be broad-based (but) manufacturing will take the lead,” said FMIC-UA&P.

Still, in the report’s outlook it noted that economic data for the months of August and early September has “a mixed picture” because of bad weather conditions in July and August which could “prevent a sharp rebound” in the third quarter.

“Manufacturing appears to have some vigor and should lead growth in the Industry sector in Q3, while the Construction subsector awaits for better weather to expand full blast,” the economists noted.

However, “heavy downpours in July impacted employment in the Construction and Mining & Quarrying sub-sectors. These also hindered consumers from going out for dinner or travel during the month to bring down employment in the Trade and Accommodations & Food Services sub-sectors under Services.”

Meanwhile, the July unemployment rate was still low at 4.8 percent and this bodes well for an expected strong rebound in jobs and consumption spending by September.

The government in July has announced that it has increased its spending by 16.2 percent year-on-year especially in the social protection programs and infrastructure spending.

The FMIC-UA&P report said that despite the expenditure increase, the January-July fiscal deficit decreased by 44.8 percent to P46.4 billion on the back of more revenues collected.

“NG (National Government) spending should take the lead in Q3 as it had added P737.1-B to its coffers by July and its infrastructure outlays accelerating in Q3,” said economists.

FMIC-UA&P said the outlook for inflation is that it will remain on the high side in September and October. The latest consumer price index (CPI) number is 5.3 percent for August which was more than July’s 4.7 percent.

“While crude oil prices may remain elevated in September and October, rice prices may reverse its climb with international prices peaking in August and rice harvests of the country in September-October reaching the markets. All told, we see elevated inflation in September and October but expect it to fall below 4% by November,” said economists.

The inflation outlook of a below four percent CPI by November is consistent with the Bangko Sentral ng Pilipinas’ (BSP) own projection. As of its latest Monetary Board policy meeting, the BSP average CPI forecast for 2023 is 5.8 percent and for 2024, 3.5 percent.

Meanwhile, the report noted that the exchange rate will continue to be bothered by the US dollar because of the hawkish stance of both the US Federal Reserve and the BSP. Currently, it is below P57 vis-à-vis the US dollar.

“The peso will remain challenged due to the US dollar’s strength (in turn, due to high interest rates) and balance of trade deficits still elevated with the surge in crude oil prices,” said FMIC-UA&P.