PH seen to have posted solid 6% growth in Q1
The Philippine economy might have posted a 6-percent growth in the first quarter, a performance that could help local equities go into upswing while local bond yields are expected to drop as the central bank stays dovish.
In their monthly “The Market Call” report, economists at University of Asia and the Pacific (UA&P) explained that the latest tariff actions of US President Donald Trump had set off a kind of “uncertainty” that can “mildly” impact the local economy.
That said, UA&P trimmed its gross domestic product (GDP) forecast for the first quarter by 0.2 percentage points to 6 percent, which might prompt the Bangko Sentral ng Pilipinas (BSP) to further cut interest rates to defend the economy from tariff-induced external headwinds.
The ongoing easing cycle, in turn, could push down local bond yields, which had been rising since Trump announced his sweeping tariffs on the rest of the world. Recall that Trump had unveiled a 17-percent “reciprocal tariff” on Filipino goods coming to America, albeit the second lowest in Southeast Asia.
More rate cuts
Economists at UA&P said the BSP might slash the key rate again in June by another quarter point. That decision would likely come regardless of what the US Federal Reserve does, they added.
“While the peso will keep a slight appreciation bias until May, the BSP move and its efforts to rebuild dollar reserves should reverse the situation in June,” they said.
“With local real 10-yields at 4.53 percent, a 14-year high, Philippine bonds look undervalued and should retrace [their] downward moves as the market perceives another rate cut by BSP in its June meeting,” it added.
At its April 10 meeting, the central bank had resumed its easing cycle with a quarter point cut to the policy rate to 5.5 percent.
The decision—which was made in the wake of Trump’s flip-flopping on his “Liberation Day” tariffs— was meant to support growth amid tame inflation, with Governor Eli Remolona Jr. hinting at “further cuts” and the end of the easing cycle this year.
‘Safe-haven’ market
In a separate report, analysts at Swiss banking giant UBS said three more rate cuts are likely on the table of the BSP this year, which could be a “boon” to a market that’s relatively safe from the tariff onslaught and the global recession that it may bring.
“This market (Philippines) may be considered a relative safe haven in the face of the ongoing trade war and global recessionary risks,” they said.
Indeed, UA&P said a 6-percent GDP growth in the first quarter may help the local stock market post gains, especially if accompanied by “good” corporate earnings and “neutral to positive” midterm election results.
“The volatility created by Trump’s to-and-fro tariffs have pervaded the financial markets in the U.S. and will likely continue to impact the Philippine equities market,” they said.
