‘Surprise’ 5% growth in Q1 seen, say FMIC, UA&P

THE ECONOMY could “surprise many” by growing 5% or even higher in the first quarter, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) have projected.

“Economic data made available in the first quarter would indicate a much-improved economy, which lead us to forecast gross domestic product (GDP) growth of 5% or more for the quarter,” FMIC and UA&P said in the March issue of their joint publication, The Market Call, released yesterday.

This estimate would put the country on track to achieving the government’s GDP target of 5%-6% for the year. It would also be an improvement from the 4.9% registered in the same period in 2011.

GDP is the sum of goods and services produced in the country in a year.

One of the reasons for optimism is the increased electricity sales which suggest robust economic growth. Manila Electric Co. reported an 8% increase in sales in February over the year before, building on the 8.6% gain in January.

“This was the best back-to-back monthly expansion since September-October 2010, the country’s banner growth year in 30 years,” the study pointed out, noting that the industrial sector once again led the surge in electricity sales.

Coupled with the expansion of cement, iron and steel output so far this year, construction could post strong results in the first quarter. The government is also pursuing its own infrastructure projects, as it kicked off the year with a sharp increase in public spending, FMIC and UA&P said. After several quarters of underspending, the government is “moving well in the right direction.”

Its outlay hit P250.831 billion as of February, up 12% from the previous year.

Moreover, the economy created 1.1 million jobs as of January, bringing down unemployment to 7.2% from 7.4% the year prior. The “relatively positive” employment report gives a “more solid basis” for the economic rebound in the first quarter.

Prices of goods and services also fell to only 2.6% in March, down from the 4% and 2.7% in January and February. Inflation could register at 2.9% in April, 3.1% in May and 3.2% in June, the report read.

“Inflation is not likely to kick up much in the second quarter as stable food prices offset much of the pressure of elevated fuel prices,” it explained.

“There is little pressure for crude oil prices to further move up, considering that Saudi Arabia has raised its output, and Iran’s sanctioned oil should find its way directly into markets like China, India and Japan,” it continued.

Export growth, meanwhile, inched back into positive territory in January, turning around eight straight months of decline.

It was one of the critical factors that dragged down the GDP to only 3.7% in 2011, barely half of the previous year’s record 7.6% and well below the government’s 4.5%-5.5% target.

“For the remaining months of 2012, we expect exports to continue its recovery as job growth and consumer sentiment have improved in the United States. Thus, we see exports averaging a 6%-8% expansion for the quarter,” FMIC and UA&P said.

With the Greek debt crisis also coming to a close, overseas remittances should grow by 4%-5% this quarter — a good rebound from the second semester of 2011, but slightly dampened by the appreciation of the peso this year.

The peso should remain in the range of P42-P43 this quarter, FMIC and UA&P predicted. The Bangko Sentral ng Pilipinas could “prefer the appreciation bias to offset the increasing trend in oil prices,” they added.

Meanwhile, in the capital markets, bond yields have increased over the fear of rising crude oil prices, despite the improving investment climate in Europe.

The surge of equities has also led to a preference for higher-yielding long-term bonds. The Philippine Stock Exchange index (PSEi) hit another historic high to close at 5,186.20 on Wednesday.

There are more corporate issuances in the pipeline, The Market Call noted, as businesses take advantage of the period of low interest rates and high liquidity. Among those that plan to issue debt papers are Ayala Land, Inc., Ayala Corp. and SM Development Corp.

“Corporate long-term bond or notes issuances will significantly pick up pace in the second quarter and the rest of the year, as firms become wary that yields may rise in the latter part of the year,” the report read.

For the equities market, FMIC and UA&P warned of “near-term pullbacks.”

“Valuations have become challenging and market complacency is at high levels,” they pointed out.

Positive factors — such as the sound macroeconomic environment, the healthy fiscal situation and the credit rating upgrade prospects — have mostly been priced in the valuation of equities.

“Valuation-wise, the market is no longer cheap… We find it difficult to justify the attractiveness of the Philippine equities market,” the report read. The recent rally of the PSEi may face consolidation until prices reach a more sustainable level, it explained. — Diane Claire J. Jiao, Businessworld