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Philippines update: Upticks for inflation, investment spending

Despite strong investment spending, the Philippine’ GDP growth rate dipped in the second quarter of 2018, with inflation peaking at a 10-year high at 5.7%.

Latest statistics released by First Metro Investment Corporation (First Metro) and the University of Asia and the Pacific’s Capital Markets Research paints a slightly more sober picture of the Philippines macro story, with growth dampening to 6% in the second quarter, down from 6.6% on the previous quarter.

In step, inflation pushed upwards reaching a 10-year high of 5.7% year-on-year, in July. In response, Bangko Sentral ng Pilipinas (BPS) raised policy rates by 50 basis points (bps) to 4%. First Metro believes there is a possibility BPS will decide on another policy rate hike of 25 bps in the second half of 2018, in an effort to dampen inflationary pressures and stabilise the peso.

For the seventh consecutive month, the Philippine peso fell, reaching a 10-year low at P53.44 to the US dollar in July, equivalent to a 0.7% fall from the previous month.

However, the story is far from negative. The equities and bond market displayed positive performances, with the former reaping gains from the return of foreign investors, resulting in a strong 6.6% rally in July. Local bond markets also traded higher volumes as local market players priced in four policy rate hikes by the US Federal Reserve (from an earlier consensus of three) in 2018. That said, the focus will remain on the headwinds affecting the domestic front – inflation, exchange rates and BSP policy rate hikes.

Infrastructure continues to be a government priority with spending for the first half of 2018 20.5% higher than for the same period in 2017.

Although the country’s gross domestic product took a hit, First Metro predicts inflation will peak in August and expects faster GDP growth later in 2018. While the latest GDP figures have fallen marginally, the Philippines remains one of Asia’s fastest growing economies with 12 straight quarters of GDP at 6% or above growth.

To gain further insights from this report, courtesy of First Metro Investment Corporation please click here

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