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A stronger economy is anticipated in 2023’s second half.

The second half of 2023 is anticipated to increase domestic economic growth due to increased infrastructure expenditures, sustained tourism-related revenge spending, and a projected further decline in inflation. The full-year output is anticipated to be above 6%.

First Metro Investment Corporation (FMIC) and the University of Asia and the Pacific (UA&P) jointly publish The Market Call each month. The May 2023 issue states that “the economy should rebound in H2 (second half) as inflation continues to ease to average 3.3 percent in Q4 (fourth quarter).”

According to the research, the country’s gross domestic product (GDP) for the year’s second half is anticipated to be stronger, driven by the services sub-sectors such as transportation and storage, lodging, and food services, largely because of the tourist sector’s ongoing recovery.

Additionally, it stated that during the dry season, infrastructure projects in the public and private sectors are seen to quicken, which can increase investments and employment, among other things.

It said, “Thus, despite the risks and uncertainties, the country’s economic outlook remains positive as it keeps pace with the government’s aim of 6-7 percent growth for the year.

According to the research, the impact of increasing inflation rates on consumer spending power is likely to cause the GDP to slow down by about 0.5% from the first quarter of the year’s 6.4 percent expansion.

This is the greatest among the Association of Southeast Asian Nations (ASEAN) 10 members for the quarter, it added, even though growth slowed down in the first three months of this year.

Although the seasonally adjusted GDP figure for the first quarter of this year was lower than the same period last year, at 1.1 percent versus 1.7 percent, it was noted in the report that “the downward trend will likely bottom in Q2 (second quarter), as inflation eases and more employment and the income tax cut boost consumption spending.”

Inflation in the first four months of this year averaged 7.9 percent, significantly higher than the government’s planned range of 2 to 4 percent.

However, after reaching a 14-year high of 8.7 percent in January last year, the monthly average has since decreased to 6.6 percent.

According to the research, the peso is anticipated to continue to have difficulties as the trade imbalance of the nation increases, as well as the effects of a potential additional 25 basis point hike in the Federal Reserve’s benchmark interest rates in June.

The local currency is now trading at 55 against the US dollar.

“The peso will continue to depreciate,” it added, “especially weighed down by large trade deficits and BSP (Bangko Sentral ng Pilipinas) not going in step with Fed (Federal Reserve) in the latter’s rate hikes, which we still expect in June.”

After monetary authorities noticed a slowdown in domestic inflation, the BSP’s policy-making Monetary Board (MB) opted to maintain the central bank’s key rates during last week’s rate-setting meeting. This is a change from the rate-hiking cycle that began in May 2022.

From a record low of 2% in 2020, the BSP’s main rates have grown by 425 basis points.

“BSP held policy rates constant at 6.25 percent in its meeting on May 18, and we believe it will have finished raising policy rates until there is a significant increase in inflation or the exchange rate increases too quickly once again. In addition, BSP Governor (Felipe) Medalla said that if inflation does fall within the revised targets, BSP may even lower reserve requirements, presumably late in the year.

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