Analysts forecast 5.9% GDP in Q2

Inflation to peak near 4% in July

The domestic economy is expected to grow by 5.9 percent in the second quarter this year, higher than the 5.7 percent gross domestic product (GDP) growth in the first quarter, enough momentum to achieve a full-year six percent growth, according to analysts from Metrobank subsidiary First Metro Investment Corp. (FMIC) and its research partner University of Asia and the Pacific (UA&P).

In its latest “Market Call” report released Wednesday, May 29, economists said the 5.7 percent first quarter GDP growth is not bad at all, as they keep their “nuanced optimism with respect to an acceleration that should start in Q2 continuing for the rest of 2024.”

“We base this on hefty employment levels, fiscal space that should enable the government to speed up spending, especially infrastructures,” said FMIC-UA&P.

As to the inflation path, the economists think this will peak in July at a level that is slightly below four percent, but not quite breaching the government target range of two percent to four percent.

By August, they expect inflation to be closer to three percent due to the easing prices of rice and crude. They also anticipate a reduction in the Bangko Sentral ng Pilipinas (BSP) policy rate during its monetary policy meeting in August.

The report said inflation will accelerate in the second quarter to average 3.9 percent from 3.3 percent in the first quarter largely due to base effects.

“We see it go closer to 3.0% by August and the rest of the year. In fact, BSP adjusted its inflation forecast to 3.8% in its May policy setting meeting from 4.0% it had projected earlier. After all, crude oil prices (WTI) have returned to below $80/bbl, a nearly $10 fall from its peak as global economic growth (especially in advanced economies) appeared more tepid than expected,” said analysts.

This is one of the reasons why FMIC-UA&P expects a second quarter GDP growth of 5.9 percent and a full-year six percent growth “with a mild upward bias.”

“High trade deficits and the US dollar strength should keep the peso slightly under pressure up to Q3,” said analysts.

In addition, the report said the peso-US dollar rate will remain “challenged” until June given the strength of the US dollar which should ease only mildly in the second semester. 

Based on the latest BSP Monetary Policy Report (MPR), the BSP continues to expect slower growth this year and in 2025 due to the still high 6.5 percent policy rate. This means the BSP expects to miss the six percent to seven percent government GDP target for 2024 and the 6.5 percent to 7.5 percent in 2025.

The BSP said domestic GDP growth outlook remains intact over the medium term despite tight financial conditions but still, the economy in 2024 “could settle below the government’s target as higher global crude oil prices and positive real interest rates temper domestic demand.”

For 2025, GDP growth could be better as global prospects also improve. “Growth is seen to pick up in 2025 on stronger net exports amid an improving global growth outlook,” said the BSP.

The BSP said the projected impact of the BSP’s policy rate adjustments is likely to peak in the second half this year. It also noted that higher global crude oil prices and positive real interest rates could also temper domestic demand. But it noted that stronger net exports amid an improving global growth outlook could support GDP growth.