DBS sees ‘fairly strong’ economic figure for Q2

Singaporean investment bank DBS forecasts an improvement in the country’s economic output in the second quarter. 

In a research note, the financial institution did not give any figures on the possible domestic output for the quarter, but said that “underlying demand stays fairly strong.”

“Private consumption and investment have driven overall growth in recent years and not much has changed on this front,” it added.

Growth, as measured by gross domestic product (GDP), remained at above-trend growth, but slowed to 5.2 percent in the first quarter of the year from the quarter-ago’s 6.6 percent because of lower government spending and weaker exports.

Economic managers, however, believe that growth would be faster in the remainder of the year on the back of expected implementation of a catch-up program for infrastructure.

The government is set to release its GDP report for the second quarter on August 27.

Relatively, the study noted the continued drop in domestic inflation, with the July figure further dipping to decades-low of 0.8 percent.

This is already way below the government’s 2-percent to 4-percent target band for this year until 2018, but monetary officials are confident that it will trek back to within-target levels in the last quarter of the year, due to the impact of the extended dry spell.

Drop in the prices of oil in the world market has been traced as the reason for the continued drop in the inflation rate, but DBS said this “is not just about oil prices.”

“One possible reason for the sustained fall in inflation numbers is currency strength,” it said.

It noted that the Philippine peso is one of the best-performing units since end-2013, and “this has kept imported inflation low.”

Another factor is the robust inflows of remittances from overseas Filipinos, it said.

And with inflation seen to remain low and growth remaining strong, DBS does not expect the Bangko Sentral ng Pilipinas (BSP) to adjust rates in the near term.

“Look for the central bank to be more tolerant of a weaker peso going forward, though, particularly given how the peso has moved in the past 18 months of so,” it added.