The economy is expected to achieve 7% or higher GDP growth in Q1 as solid recovery of agriculture (+4% to 5%) and double-digit expansion of exports add the needed boost for GDP to hit 7% or higher. Capital goods imports and construction spending should continue to lead robust investment spending. Continued vitality of manufacturing sector and consumer spending should shore up domestic demand. Inflation will likely remain around 3.4% to 3.5% until Q3, well within the BSP’s target range, due to falling food and crude oil prices.
Fixed Income Market
With President Donald Trump’s economic stimulus plan facing delays, 10-year U.S. Treasury bond yields will continue to find it difficult to get back to 2.5%. As local headline inflation should stay close to 3.4% until Q3, bond yields are expected to be range-bound. The yield curve may steepen slightly, as shorter-end yields look to soften on strong demand.
With the slow progression of economic reforms in the U.S., investors (especially foreign) went on a buying spree to drive the PSEi to overbought levels. We expect a selling trend to take shape in May and flat out until August, as the market undergoes healthy consolidation.