Q2 growth seen at 6.5% on better jobs data

Categories: Business Updates

Date Posted: 23 Jul 2014

Despite the increase in commodity prices, the improvement in the country’s employment numbers may have provided the boost that pushed the country’s economic growth to better-than-expected levels.

In its latest Market Call report, the First Metro Investment Corp.-University of Asia and the Pacific (UA&P) Capital Markets Research group said growth probably accelerated to 6.5 percent during the period.

This is higher than the 5.7 percent posted in the first quarter, which was the slowest growth in nine quarters. However, the projected growth rate for the second quarter is the low end of the government’s 6.5-percent to 7.5-percent target this year.

“With the surge in employment in April over year-ago levels and robust industrial output expansion, the outlook for the second quarter and the rest of the year remains positive. The sustainability issue may be resolved once we see the July employment-data release in September,” the FMIC Capital Markets Research group said.

The research group said breaching the government’s 1-million target for new jobs is important because this is also the first time the target was breached in two years.

The last time the economy created more than a million jobs was in April 2012, when the number of new jobs reached a little over a million.

Further, the research group said apart from the new jobs created in April, data also showed that unemployment dropped to 7 percent in April 2014, from 7.6 percent in April 2013.

“Broad-based growths in all sectors signal a promising second-quarter GDP [growth domestic product] performance. Likewise, the 1.7 million jobs added in April 2014 give hope for virtuous cycle of growth. This, how-ever, calls for efficient implementation of strategies identified to improve labor productivity and encourage investments,” Market Call stated.

Given these indicators, the FMIC Capital Markets Research group said their outlook for the second half of 2014 also looks encouraging.

The group said there may be higher infrastructure spending in the second half of the year. This was based on expectations that more public-private partnership projects have begun construction and more are under way.

It also added that there may be increased spending for reconstruction and rehabilitation efforts in the second half of the year.

Further, the group also believes that the peso’s gains against the dollar will not continue into the second half of the year on the back of the end of the “tapering” in October 2014.

However, there is a risk that inflation may increase in the July-to-December period. This was particularly due to possible increases in the price of rice and other commodities that make up the country’s food basket.

Nonetheless, what will keep inflation in check is the easing of crude-oil prices in June. The group explained that the strong military response of the Kurds in Northern Iraq has stopped the advance of rebels in the area and was the cause for the peak in oil prices in May.

“As monetary authorities have tightened policy further with the increase in SDA [special depository account] rates, we should see a rapid deceleration in money growth by the third quarter. Given the likely softening of crude-oil prices, the BSP [Bangko Sentral ng Pilipinas] may add only another 25 bps [basis points] on SDA rates before the end of the year,” the group said.
Written by: Cai U. Ordinario

Source: http://www.businessmirror.com.ph/index.php/en/news/top-news/35836-q2-growth-seen-at-6-5-on-better-jobs-data

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