Moody’s sees second-quarter
economic growth at 6.8%

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GROSS domestic product (GDP) growth likely raced to 6.8% last quarter, Moody’s Analytics said on Friday, baring an estimate that — if realized — would put its full-year projection for the Philippines and that of the government within reach.

MERCHANDISE EXPORTS’ continued recovery is expected to have added to the boost provided by investments and household spending.

Friday also saw Citi Research signaling separately that the lower end of the government’s 6.5-7.5% economic growth goal for this year can be achieved.

The Moody’s estimate is faster than the first three months’ actual 6.4% but would be slower than the second-quarter 2016’s 7.0%.

But it would still put the first-half pace on firm footing to enable the year to hit Moody’s 6.5% projection and the government’s own target for the entire 2017.

The Philippines Statistics Authority is scheduled to report second-quarter and first-half GDP data on Aug. 17, and Socioeconomic Planning Secretary Ernesto M. Pernia has said the pace was likely faster than the first quarter’s but slower than that of April-June 2016.

“Philippine GDP growth likely accelerated to 6.8% y/y in the second quarter, compared with 6.4% in the opening three months of the year,” Moody’s said in the Aug. 14-18 Asia-Pacific Economic Preview it e-mailed to journalists on Friday.

“The main boost will come from exports, which have been expanding rapidly in recent months largely because of stronger shipments of electronics.”

Moody’s released the note a day after the government reported that merchandise exports grew for the seventh straight month in June, though at the slowest pace — just 0.8% year-on-year to $4.913 billion — within that period.

June brought first-half merchandise export sales to $31.04 billion, up 13.6% from $27.33 billion in 2016’s comparable six months and surpassing the government’s five percent growth projection for 2017.

Moody’s on Friday also said that “domestic factors have remained conducive to strong growth”, noting that ‘… [p]rivate consumption will grow rapidly for the foreseeable future, thanks to rising incomes and favorable demographics”, while “… [i]nvestment will also expand rapidly as a result of a mixture of private and government projects”.

Sister company Moody’s Investors Service in late June affirmed the country’s “Baa2” credit rating — a notch higher than minimum investment grade — and kept the outlook for this score “stable”, or unlikely to change over the next two years.

“The Philippines’ Baa2 rating reflects high economic strength that balances the country’s large scale and rapid growth against low per capita income relative to peers,” Moody’s Investors Service had said then.

“Our assessment of its institutional strength incorporates a long track record of sustaining macroeconomic and financial stability, despite weaker Worldwide Governance Indicators as compared to other investment grade countries.”

It also said then that it expected Philippine GDP “growth to be sustained at above six percent per year over the next two years, driven largely by the private sector.”

Citi Research on Friday separately gave a downgraded 6.5% projection for 2017, also within the government’s full-year target, and a 6.6% forecast for 2018 against the government’s 7-8% projection for that year.

Citing the petering out of the boost provided last year by spending related to the May 2016 national elections, Citi Head of Asian Emerging Markets, Economics and Strategy Johanna Chua told reporters in a briefing in Makati City that the Philippine economy is on a “slowdown trajectory from last year but we are still stabilizing at a pretty decent growth rate”.

“And we have to remember by Asia standards, for this year, the only countries that we expect to grow faster than the Philippines… is India and China.”

Asia itself is expected to grow by 6.1% this year from 2016’s 5.9%, before slowing to 6.0% in 2018, while global economic expansion is projected to clock 3.1% and 3.3%, respectively, for the same years.

Inflation, Citi Research said, will be generally supportive of growth, staying within the government’s 2-4% target range for the next two years. It forecasts the overall year-on-year increase of prices of widely used goods and services at 3.1% and 3.4% in 2017 and 2018, respectively, against the central bank’s own updated forecast full-year average of 3.2% for this year and 2018.

“By regional standards we are still doing well, very, very well.”

But while the Bangko Sentral ng Pilipinas (BSP) on Thursday kept monetary policy steady for the 23rd straight Monetary Board meeting, or since September 2014, Citi Research said it now expected the BSP to hike policy rates — now at 3.5% for overnight lending, 3.0% for the overnight reverse repurchase rate and 2.5% for overnight deposit rate — by three to four times in 2018, as the Federal Reserve raises US rates three times in the same year.

The Fed ended close to a decade of near-zero policy rates by raising them by 25 basis point in December 2015, following that move with increases of the same magnitude in December 2016, as well as in March and June. — with a report from Janine Marie D. Soliman