Philippine GDP Growth Likely Slowed to 2.5% in Q2 Due to Inflation Risks, UA&P Says

MANILA, Philippines — Philippine economic growth likely slowed in the second quarter compared to the previous quarter due to inflation risks stemming from the recent wage hike, unfavorable weather conditions and renewed tensions in the Middle East, according to the University of Asia and the Pacific (UA&P). “Second quarter GDP (gross domestic product) growth will likely slow to 2.5 percent year-on-year,” UA&P said in The Market Call Capital Markets Research report for July. The forecast is lower than its previous second quarter GDP forecast of 2.6 percent. It is also lower than the first quarter’s 2.8 percent growth, which was the weakest performance in five years. UA&P cited the triple threat of an intense El Niño, the P85 daily minimum wage hike in the National Capital Region and renewed Middle East tensions that could push up inflation and temper economic growth. It said these threats may drive inflation to reach above seven percent. Inflation eased but remained elevated at 6.4 percent in June compared to the previous month’s 6.8 percent. Average inflation from January to June stood at 4.8 percent, above the Bangko Sentral ng Pilipinas (SBP)’s two to four percent target band. UA&P also expects elevated inflation to prompt the BSP to stay on the hawkish side with 50 basis points of rate hikes for this year. “The BSP is likely to maintain a cautious policy stance as broadening price pressures, second-round effects and the sudden upward minimum wage adjustment continue to pose upside risks,” UA&P said. Last June, the BSP raised the key interest rate by 25 basis points to 4.75 percent. While exports are expected to be supported by improving electronics shipments and recovering global manufacturing activity, UA&P said that geopolitical tensions and slower global growth could moderate exports growth in the coming months. UA&P also said that overseas Filipino workers’ remittances are expected to remain a key pillar of household consumption and foreign exchange earnings. “While geopolitical risks and softer labor market conditions abroad may keep growth in the low single digits, resilient overseas employment and continued demand for Filipino workers should support steady remittance inflows in the coming months,” UA&P said. Data on the country’s second quarter economic performance will be released on Aug. 7.