First Metro Investments Corp. (FMIC) said the economy may have bottomed out in the second quarter of the year when it registered a 16.5 percent contraction as the succeeding monthly economic data showed “gains.”
In its monthly research paper Market Call, FMIC said while the depth of the economic contraction “makes it difficult for the economy to come out of negative territory” in the third quarter and fourth quarter, the worst may be over for the economy and will continue to improve as the quarantine measure is relaxed.
“We begin to see month-on-month gains in the real economy, such as in manufacturing, capital goods imports, exports, and probably construction and expect to see more in the coming months, albeit at non-spectacular rates,” it said.
“OFW (overseas Filipino workers) remittances returned into the positive growth territory in June after three consecutive months of decline. Nonetheless, we still feel the need to monitor these in the coming months to see if the growth can be sustained or if June (usually a strong inflow month) resulted from a few months of belt-tightening by OFWs,” it added.
FMIC also said inflation should remain close to 2.5 percent in the coming months since the monthly increases in crude oil prices have eased amidst huge inventories in the US and advanced economies.
It said with the government raising P601 billion in July to August largely with the P516.3 billion retail treasury bond (RTB-24) issue, “there is less pressure for it to over borrow from the domestic money market, even as long-tenor ROPs yields hit record lows.”
This will enable to government to step further on its infrastructure and capital spending, it said.
Government having sourced its funding needs before the yearend means yields on fixed-income securities will not keep on rising, FMIC said.
It said government bond yields are not likely to drop further even after the mild downward trend of the US 10-year bond yields in July, currently yielding a 0.6 percent coupon.
This is due to the downside of the US bond yields “appears limited,” it said.
“In sum, the rally in the bond markets will likely continue, but equities may have to wait for better earnings to get back on an upward trajectory,” it said.
Investments continue Undersecretary Ceferino Rodolfo, managing head of the Board of Investments (BOI), in a press briefing said the agency registered a 25-percent increase in investments in the first eight months of the year from the same period in 2019, indicative of interest in the Philippines for medium to long-term investment opportunities such as infrastructure.
Rodolfo said the reduction to 10 percent of the unemployment rate — while still bad — is indicative of the correlation of the opening of industries vis-a-vis the ability to generate jobs by the economy.
He said the BOI will continue to work with other agencies on how to slowly and safely open more industries moving forward.
He added the inter-agency task force on REBUILD (Revitalizing Business, Investments, Livelihood and Domestic Demand) will also continue to address and respond to demand through local production and local procurement.
He cited as the ability now of the Philippines to produce internationally-certified medical-grade personal protective equipment through repurposing as one of the successful initiatives of REBUILD.
But Rodolfo urged for the immediate passage of the Corporate Recovery and Tax Incentives for Enterprises or CREATE bill which will promote the Philippines as an ideal investment destination.
View from business Benedicto Yujuico, president of the Philippine Chamber of Commerce and Industry (PCCI) sees notable improvements in the level of economic activity and employment in the fourth quarter as he welcomed recent moves by the government to open more businesses beginning September 1.
Yujuico said expanding the quarantine periods from two weeks to four will also help businesses plan better.
“The government is widening the runways so to speak. This is very important for manufacturing especially those with long lead times from receiving raw materials to delivery of finished products,” Yujuico said in his remarks at the Metro Manila Chamber of Commerce Business Conference yesterday. (With I.Isip)