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Fourth quarter marks start of economic pickup — FMIC, UA&P


SIGNS OF an economic recovery are emerging this quarter based on readings of recent industrial activity and trade data, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said in a joint report.

In the November issue of their Market Call, FMIC and UA&P said the improving economic indicators include the narrower decline in Volume of Production Index of minus 6.5% following the minus 9% posted in August. They said the industrial sector will likely sustain these gains.

“The Philippine economy will likely perform better starting Q4 as industrial production and exports have slowly improved. The robust recovery of China, other ASEAN countries and the US economy should support exports moving forward,” they said.

Merchandise exports snapped a six-month losing streak in September with a rise of 2.2% year on year to $6.22 billion. However, goods imports still declined by 16.5% to $7.92 billion.

FMIC and UA&P said they expect government spending to ramp up in the last three months of the year amid pressure on agencies to disburse funds faster for government projects.

However, overall spending was still down 7.84% year on year at P290 billion in October, the first month of the quarter.

The recession continued after an 11.5% contraction in gross domestic product in the third quarter, with household spending remaining weak and the much-needed stimulus from the government not showing up in the results.

To encourage banks to lend more, the Bangko Sentral ng Pilipinas (BSP) last week slashed benchmark rates by 25 basis points to new record lows of 2%, 2.5%, and 1.5% for the overnight reverse repurchase, lending, and deposit facilities, respectively.

“Apart from taking advantage of the low and softer interest rates after the BSP policy rate cut, corporates will rely on mild government borrowing for the rest of 2020 to issue more sizeable bonds,” they said.

“The passage of crucial recovery bills such as the 2021 budget, Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, the Financial Institutions Strategic Transfer (FIST) Act and Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) Act, should address specific needs of businesses, while authorities pursue efforts to avoid virus surges and to ease restrictions for businesses and transportation for near term growth,” they added. — Beatrice M. Laforga

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