GDP likely grew above 7% in Q1 —FMIC, UA&P

The Philippine economy is expected to have expanded by more than 7 percent in the first three months of the year, First Metro Investments Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said in a report on Monday.

According to the March 2018 edition of “The Market Call,” the economy likely grew by more than 7 percent from a combination higher employment, foreign investments, and manufacturing output.

“The signs are all pointing to gross domestic product (GDP) expansion of above-7 percent in Q1 2018,” the report read.

A 7-percent growth is possible, said economist Angelo Taningco of Security Bank Corp., noting that the number is the higher range of the bank’s GDP forecast.

“Our first-quarter GDP growth forecast is more conservative as it ranges between 6.5 percent and 7.0 percent,” he told GMA News Online.

Some 2.4 million jobs were created from January 2017 to January 2018, while foreign direct investments reached a record high of $10 billion in 2017.

“The 2.4 million new jobs created over a year and the still strong spending on infrastructure should bolster domestic demand. Strong FDI gains in H2 should provide additional support,” The Market Call noted.

“Recovery in major trading partners would, likewise, improve the external sector's performance," it added.

Among the economy’s drivers in January to March are a healthy demand and fiscal stimulus with the implementation of tax reforms, Taningco noted.

“I consider the drivers of GDP growth for the first quarter to be: Healthy external demand for Philippine goods and services amid growth in major economies; Philippine fiscal stimulus amid TRAIN’s tax cuts and Build, Build, Build program; and BSP’s accommodate monetary policy,” he said.

Under the Build, Build, Build program, the government plans to spend over P8 trillion until 2022, largely funded by tax revenues.

This year alone, the Philippines plans to roll out 76 big-ticket projects valued at $35.5 billion or P1.1 trillion.

“TRAIN’s income tax reductions will have a positive impact on household consumption, which is the biggest contributor to GDP on the demand side. This is the growth driver from TRAIN,” Taningco said.

According to the Department of Finance (DOF), lower personal income tax rates would give Filipino consumers a combined P10 billion “cash bonanza” to spend each month.

The Market Call, however, flagged accelerating inflation as a cause for concern after registering the fastest pace in over three years in February and March this year.

“The main concern has shifted to the acceleration of inflation,” it said.

“The effect of TRAIN may have been more fully felt, even though the sharp 21.9 percent Brent crude oil price [increase] and peso depreciation would account for much larger part of the uptick,” the report noted.

Taningco said inflation could serve as a headwind moving forward.

“TRAIN’s excise taxes on select products have raised consumer prices, and therefore are inflationary. This inflationary impact of TRAIN serves as a headwind to household consumption and GDP,” he said.

The Tax Reform for Acceleration and Inclusion (TRAIN) measure was signed into law by President Rodrigo Duterte on December 19, 2017. It lowered the personal income tax rates and expanded the value-added tax (VAT) base starting January.

“All told, we see GDP growth accelerating to beyond 7 percent ... in Q1, given the strong multiplier effects of job growth, and robust manufacturing and construction sectors,” The Market Call noted.

But Taningco noted that there were other concerns, apart from inflation, during the the first quarter.

“I think the headwinds to the first-quarter growth include accelerating Philippine inflation, weakening of consumer sentiment, and heightened volatility in capital and foreign exchange markets,” he said. —VDS, GMA News