PHL likely to hit growth goals — Moody’s Analytics

The Philippine economy will likely achieve its full-year growth target of 6.5-7.5%, despite soaring inflation and a sluggish jobs market, Moody’s Analytics said.

“The Philippines will battle inflation pressures, slowing growth and a challenging labor market… Nonetheless, we expect the Philippine economy to still meet the official 2022 growth target of 6.5-7.5%,” .

Gross domestic product (GDP) expanded by 7.4% in the second quarter, slower than 12.1% a year earlier and 8.2% in the first quarter, preliminary data from the Philippine Statistics Authority showed.

In the first half, GDP growth averaged 7.8%.

Socioeconomic Planning Secretary Arsenio M. Balisacan on Tuesday expressed confidence the full-year growth targets will be achieved.

He said the economy would need to grow by 5.3% in the second half to achieve the 6.5% target. To hit the 7.5% goal, he said GDP would have to expand by an average of 7.2% in the second semester.

Moody’s Analytics said policy rate hikes will also likely impact growth this year.

“The Bangko Sentral ng Pilipinas (BSP) is expected to put forward another rate hike in August, albeit a smaller one than July’s 75-basis point (bp) hike. The downside risk of higher interest rates is a squeeze on household spending, a key driver of GDP growth,” it said.

The Monetary Board will have its next policy review on Aug. 18. The BSP has raised rates by 125 bps so far since May.

Meanwhile, Moody’s Analytics said household spending may be vulnerable in the second half, as inflation continues to bite.

Second-quarter data showed household consumption expanded 8.6% year on year, but contracted 2.7% quarter on quarter, reflecting the impact of soaring inflation on domestic demand.

Inflation surged to a near four-year high of 6.1% in June, bringing average inflation to 5.5% for the second quarter.

“Election-related spending didn’t give growth much of a lift, and services surprised on the downside, contracting 0.4% quarter on quarter. The service sector employs the most people, so a contraction spells trouble for the labor market,” Moody’s Analytics said.

The services sector is the largest employer, accounting for 56.5% of jobs in June.

The unemployment rate stood at 6% in June, unchanged from May. However, the total number of unemployed Filipinos reached 2.990 million in June, 62,000 higher than the 2.927 million in May.

Source: BusinessWorld

Demand for residential property may decline

Demand for residential property may drop due to rising interest rates and prices, according to a property services firm.

Citing data from the Bangko Sentral ng Pilipinas (BSP)’s Residential Real Estate Price Index (RREPI), Cushman and Wakefield Philippines said residential property prices are slowly rebounding, rising by 5.6 percent in the first quarter.

“Residential prices in Metro Manila, particularly for condominium properties, are slowly bouncing back amid the sustained reopening of the economy that allowed increased business activities in the capital region,” Cushman and Wakefield said.

“However, the BSP’s decision to raise the key policy interest rate to 3.25 percent and the higher level of overall prices could dent demand for residential real estate in the short to medium term,” it said.

The BSP reported that residential property prices in the National Capital Region (NCR) increased by 9.5 percent year-on-year, mainly driven by the increase in the prices of condominium units and townhouses, which more than offset the decrease in the prices of duplex housing units and single-detached/attached houses.

Similarly, property prices in areas outside the NCR rose by five percent year-on-year as all types of housing units registered an upturn, except for single-detached/attached houses, which posted a decline.

Apart from the residential market, the property services firm said recent upward adjustments in the benchmark interest rates may also affect the level and accessibility for both retail and corporate bank financing.

In an earlier report last month, Cushman and Wakefield said the country’s residential segment is experiencing a steady recovery as market activities scale back to normalcy.

“While the momentum of the segment’s growth in Metro Manila can be largely associated with the return-to-office scenario, particularly by the IT-BPM industry, which is heavily concentrated in the CBDs, integrated communities with residential components will continue to spur in the provincial areas, particularly in Central Luzon where there are major infrastructure developments,” it said.

Santos Knight Frank (SKF) chairman and chief executive officer Rick Santos said that the higher interest rates in the country are expected to affect home mortgages.

“Interest rates impact on home mortgages will also be seen. We’re seeing mortgage rates going up,” Santos said.

Source: Philstar

‘More rate hikes needed as inflation still to peak’

Ayala-led Bank of the Philippine Islands (BPI) believes inflation has not peaked yet despite quickening to 6.1 percent in June from 5.4 percent in May and is expected to average between five and 5.5 percent this year.

BPI lead economist Jun Neri said in a commentary that inflation is likely to accelerate until October this year.

“Despite the jump in June, inflation has probably not peaked yet. The headline figure may continue to go up until October assuming oil prices will stay at current levels. In this scenario, average inflation is expected to settle between five and 5.5 percent,” Neri said.

Inflation averaged 4.4 percent in the first half of the year, breaching the BSP’s two to four percent target range. The BSP Monetary Board recently raised its inflation forecasts to five instead of 4.6 percent for this year and to 4.2 instead of 3.9 percent for next year.

To help manage spillovers from other countries that could potentially disanchor inflation expectations, the BSP Monetary Board delivered its biggest rate hike in 20 years after it raised interest rates by 75 basis points in a surprise off-cycle rate setting meeting last July 14.

The jumbo rate hike preceded the back-to-back 25 basis points rate hike on May 19 when it started its interest rate liftoff followed by another one on June 23 to curb rising inflationary pressures.

This brought the benchmark rate to 3.25 percent. It would be recalled that the BSP slashed interest rates by 200 basis points, including the 50 basis points delivered in April 2020, as part of its COVID-19 pandemic measures to cushion the impact of the global health crisis on the economy.

The Cabinet-level Development Budget Coordination Committee (DBCC) recently lowered anew the country’s gross domestic product (GDP) growth target to a range of 6.5 to 7.5 percent from the revised seven to eight percent for this year. Economic managers originally pegged the target at seven to nine percent.

Neri said the central bank’s Monetary Board is likely to raise key policy rates by another 25 basis points on Aug. 18.

“Even with the aggressive rate hike, we believe the economy has enough capacity to absorb this. GDP growth may slow down a bit because of higher interest rates, but it might be worse if inflation goes up further,” Neri warned.

He said household consumption accounts for 70 percent of the economy and that inflation has more severe impact on consumption.

Neri pointed out that the economy managed to grow by 6.3 percent in 2018 and 6.1 percent in 2019 even if the policy rate was above four percent.

“A prolonged period of high inflation will eventually hurt consumers, which will likely affect the economy more severely compared to higher interest rates,” Neri said.

Source: Philstar