ING: Rise in spending to spur economy in H2

A further rise in government spending for April 2015 is seen to perk up the economy for the rest of the year, an economist at investment bank ING said.

ING Bank Manila senior economist Joey Cuyegkeng said they “believe that the trend of accelerated spending would continue.”

“Execution of the fiscal program is quite critical. A poor report would raise concerns about the economy’s growth prospects and corporate earnings prospects and result to continued net foreign selling at the stock market,” he said.

In the first four months of the year, government spending grew 4 percent year-on-year to P504.05 billion from P482.53 billion year-ago’s.

Moderate growth of spending was traced particularly to lower infrastructure spending, which economic officials attributed to the delay in fund releases due to still low absorptive capacity of government agencies in implementing their infrastructure projects, as well as stringent rules on approval of government projects.

However, the government vowed faster growth of infrastructure spending for the rest of the year since projects that are delayed for implementation for 2014 are set to be implemented this year.

Another factor that is seen to support infrastructure spending is the implementation of projects in areas damaged by Typhoon Yolanda (international name: Haiyan).

Relatively, exports, which is among the domestic economy’s growth drivers, failed to boost domestic expansion in the first quarter of the year and Cuyegkeng noted that this can be expected in the fourth month this year.

“A weak April exports report did not provide confidence that economic growth would be about to recover the second quarter,” he lamented.

Exports posted a 4.1- percent decrease in the fourth month this year, a reversal from the 1.3 percent last year due to drop in demand for eight of the 10 major commodities from the Philippines.

Electronics, which is nearly half of the country’s exports, grew by 17.8 percent along with coconut oil, which rose by 30.3 percent.

In the first four months of the year, exports went down by 1.2 percent.

The government’s growth target for this year is 5 percent. In 2014, it grew by 7.3 percent.

Cuyegkeng also forecasts a P44.85-P45.50 range for the peso to the greenback due to volatilities caused by, among others, the expected increase in US interest rates within the year.

“This new range is likely to hold in the near term,” Cuyegkeng added in his latest market report.

Cuyegkeng expects remittances from Filipinos abroad, which he projects to grow by five to six percent this year with inflows of about $24 billion, will continue to support the local currency.

“Nevertheless, external factors continue to affect the [Philippine peso],” he said.

The ING economist noted that the local unit “was the worst performer among Asian emerging market currencies last week” amidt the central bank’s report about the country’s strong external payments position.

The local currency has been generally weak in recent weeks on back of the widely expected hike in the Federal Reserve’s interest rates as the US economy posts positive economic reports.

Monetary officials, however, remain confident that the peso would remain within the government’s target range of between P42 and P45. Luis Leoncio