Here's why Philippines' growth will slip to 5.6%

Inflation has been kept capped, but growth will still contract.

According to DBS, economic momentum from 1Q is expected to spillover into 2Q. A modest easing of headline growth from 6.4% YoY in 1Q to 5.6% in 2Q is expected and this will take first half growth to 6%. Despite this robust pace of economic growth, inflation has thus far been benign, averaging just 3% YoY in the first seven months of the year, putting the Philippines in a sweet spot of high growth and low inflation. Accommodative monetary policy has translated into healthy credit expansion.

Here's more from DBS:

For the first half of the year, monthly loan growth rose by an average of 15.4% YoY. Consumer spending should also remain strong and this has been reflected by car sales, which pushed to a 24-month high in July. Meanwhile, exports actually rose in 2Q despite no meaningful improvement in electronics shipments. Instead, the slack was made up by a surge in non-electronics
manufactures.

The outlook in the coming quarters is mixed. Domestically, the authorities still have plenty of leeway to maneuver. Inflation, although likely to tick up due to food price pressures, should still remain on the low end of the central bank’s (BSP) 3-5% target. This implies that further monetary easing is certainly possible.

Moreover, despite an improvement in disbursement, fiscal spending remains slow as reflected by the still small budget deficit of PHP73.7bn (Jan-Jul). Things are not as sanguine on the external front and this will be reflected in the export numbers. In particular, Electronics exports are still the mainstay and a sustained improvement in this segment appears unlikely. For the full year, we maintain our growth forecast of 5.3% this year, noting that even if growth slows in 2H, the overall GDP figure will be anchored by a strong 1H.