EconomyEditor's PickUpside surprise seen in third-quarter GDP

November 3, 2021

THIRD-QUARTER economic performance will likely exceed expectations despite the tightening of quarantine rules as manufacturing and trade start to recover, First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) said in a joint report Wednesday.

“The most recent economic data suggest Q3 GDP (gross domestic product) growth should dispel some of the pessimism after the imposition of stricter lockdown of Metro Manila+ in July-August,” FMIC and UA&P said in their October market call.

The manufacturing sector’s improving performance could bring the economy back on track, they said.

Manufacturing activity fell to a 15-month low in August after a Delta variant-driven surge in coronavirus disease 2019 (COVID-19) infections led to heightened restrictions in Metro Manila.

IHS Markit reported that the Philippine manufacturing purchasing managers’ index fell to 46.4 in August from 50.4 in July.

But UA&P and FMIC noted that the volume of production index that month rose 534.6% year on year, just slightly slower than the previous month’s increase.

“Expansions in 16 out of 22 industry categories, one of which recorded a four-digit increase, sustained the momentum,” according to the report.

“The manufacturing sector looks poised to lead Q3 gains as we have seen employment increases in July and August. Besides, IHS Markit Philippines Manufacturing PMI for September climbed to a six-month high of 50.9 from 46.4 a month earlier.”

Manufacturing helped employment to rebound as job creation hit about 2.6 million in August, the two institutions said.

“Although the Industry sector called in only some 33,000 back to work, the manufacturing sub-sector added 169,000 people to its payroll and resulted also in the highest contribution to the industry sector from October 2020 with a cumulative 680,000 workers harnessed.”

The report also pointed to improvements in trade as well as foreign direct investment after investors bought stakes in Aboitiz Power and raised their holdings in First Generation Corp.

Merchandise exports rose 17.6% year on year to $6.47 billion in August, while merchandise imports grew 30.8% to $10.04 billion, according to preliminary estimates by the Philippine Statistics Authority.

“The runup of exports should continue for the rest of the year especially considering the recent depreciation of the peso,” UA&P and FMIC said.

The government in August cut its economic growth target for the year to 4-5% from 6-7% previously to reflect the effect of reimposed mobility restrictions in Metro Manila.

Although optimistic, UA&P and FMIC said third-quarter GDP will not come close to the 11.8% uptick in the second quarter.

“Job gains in the services sector remained tepid, and insufficient to cover the losses in July. Inflation should remain elevated in October-November, but we still expect it to fall below 4% by December especially as crude oil prices steady or decline and 2020’s last two months showed unusually high price upticks,” they said.

Inflation likely accelerated in October due to the continued rise in pump prices of fuel and a spike in food costs due to a severe tropical storm, analysts said. A BusinessWorld poll of 21 analysts yielded a median estimate of 4.9% for the October consumer price index, falling at around the midpoint of the 4.5-5.3% forecast given by the Bangko Sentral ng Pilipinas (BSP).

If the projections are realized, headline inflation will exceed the 2-4% BSP annual target range for a third straight month. Inflation data will be released Friday.

The economy exited recession after growing 11.8% in the second quarter. It had declined 3.9% in the three months to March. — Jenina P. Ibanez

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