The Philippine Gross Domestic Product (GDP) grew by 6.4% yoy during the 1st quarter which was primarily led by exports which expanded by 20.3% yoy. Trade has been picking up in the Philippines as in the rest of the world. Imports also grew quite strongly at 17.5% yoy. The solid numbers on the trade front offset the slower annual growth in household consumption which is the largest component of aggregate demand. Household consumption grew by 5.7% yoy, lower than the 7% growth figure registered in 2016. Capital formation also only expanded by 7.9% during the 1st quarter which is a weak number compared to the following capital formation growth rate figures -- 2016 4Q: 14.7%, 2016 3Q: 21.7%; 2016 2Q: 30.3%; 2016 1Q: 31.5%; 2015 4Q: 16.2%; 2015 3Q: 15.3%; 2015 2Q: 28.6%; and 2015 1Q: 15.7%. This weak capital formation number during the 1st quarter of 2017 needs to be monitored. Government final consumption expenditures expanded by a measly 0.2% yoy. In sum, the stronger export performance offset the weaker performances of household consumption, government consumption expenditures and capital formation.
We are still awaiting the passage of Phase 1 of the Tax Reform Program which is necessary to fund the infrastructure program of the government. The country needs to invest heavily in its infrastructure to help boost growth & productivity and to overcome supply-side bottlenecks in the economy. We expect passage of Phase 1 of the tax reform program during the 4th quarter of this year.
On the inflation front, the country’s inflation rate has remained under firm control. The inflation rate has remained in the target 2-4% range of the BSP as shown in the following figures – June 2017: 2.8%; May 2017: 3.1%, March & April 2017: 3.4%; February 2017: 3.3% and January 2017: 2.7%. The average for the year so far is 3.1% which is the projected inflation rate of the BSP for this year. As such, we expect the BSP to maintain interest rates at the present level or to increase interest rates by just 25 basis points for the rest of the year.