Strong Q2 optimism wanes

MANILA, Philippines — Optimism has waned for a strong second quarter performance as a still weak labor market has prevented the economy from fully opening up due to continued mobility restrictions.

In its latest Market Call report, First Metro Investment Corp.(FMIC) and the University of Asia and the Pacific (UA&P) Capital Markets Research said the weak labor print in April coupled with the extended restrictions in Metro Manila and nearby provinces likely squeezed consumer spending in the second quarter.

FMIC said economic data on exports, imports and production in the beginning of the quarter pointed to a sure recovery underway. But the reimposition of lockdown has reversed such gains.

In particular, the unemployment rate rose to 8.7 percent with 4.1 million jobless Filipinos in April.

“The economy lost about 2.1 million jobs in April. We may see another round of job losses, albeit lower than what was recorded in April, to reflect the mobility restrictions imposed in May onwards,” FMIC said.

“This may have a bigger negative impact in the second quarter since consumption spending accounts for more than 70 percent of gross domestic product. Second quarter GDP may dampen growing optimism,” it said.

Socioeconomic Planning Secretary Karl Chua said the economy is expected to turn in a strong second quarter performance, but sustaining such growth hinges on the reopening of economic activities to bring back consumption and boost business confidence.

The economy is coming from five consecutive quarters of decline as the pandemic continues to take its toll. The base effects of the 16.9 percent contraction in the second quarter of 2020 will also push the figures up.

FMIC maintained that prices of goods and services would continue to hover above four percent for the most part of the year and would start easing only toward the tail-end of 2021.

“Mild price increases will continue amid global bottlenecks and resurgent demand. Inflation will stand below four percent only by the fourth quarter of 2021,” it said.

Inflation remained at 4.5 percent in May as lower food prices eased sufficiently to overpower the continued rise in fuel prices. However, pork prices, another driver of inflation during the month, have yet to stabilize.

FMIC noted that the lower tariff rates for pork imports may soften food inflation in the coming months.

But other food prices may have already adjusted downward so the unabated rise in global crude oil prices may offset milder food prices.

“Huge increases in international shipping costs have also added to producers’ concerns,” FMIC said.

It said the Bangko Sentral ng Pilipinas  would not consider any monetary tightening in the light of the economy’s stubborn weakness.

“Actually, it may surprise the market with further rate cuts since they still widely exceed the 91-day T-bill yields,” it said.

The exchange rate also appreciated, however, FMIC said it does not seem sustainable in the months ahead, especially with US labor market recovery gaining traction and imports rebound as the Philippine economy also recovers.