Driven by domestic demand, the economy should continue fast growth, albeit slower than in 2022 (7.3%), as the economy opens up further. Elevated employment levels, not seen in election period H1-2022, should continue during the Christmas season and provide, together with depreciated peso, consumers with spending power in 2023 despite high inflation. Besides, we do expect inflation rates to start falling to around 6% in Q1-2023 as crude oil and other commodity prices have mostly gone back to pre-pandemic levels. National Government spending esp. on infrastructure should keep a fast pace, while investors, esp. foreign ones, will take advantage of the revised Public Service Act, which limits public utilities to only three basic activities
Fixed Income Outlook
As widely expected, the U.S. Fed reduced its policy rate hike to 50 bps and hinted slowing down its tightening cycle moving forward, sending global bonds to revive in December. The terminal rate of Fed Funds will likely reach at least 5% in 2023 before a pause occurs as the labor market remains robust. Domestically, with faster inflation at 8% in November and 10-year yields below 7% in December, real yields fell to -1.14% which may encourage profit-taking since inflation may not decline significantly until Q1-2023.
Inflation has likely peaked in the U.S. and globally even as Fed policy rate hikes expectedly eased. With foreign investors back in the local market, PSEi posted highest regional gains of 10.2% to 6,780.80. The PH's robust domestic demand, especially consumption and infrastructure spending, should keep the PH economy humming, and so corporate profits should continue to impress—as seen in strong earnings growth of 27.3% YoY in Q3-2022. These should keep local equities attractive to investors. To access the latest The Market Call issue and other research reports, please click the link https://firstmetro.com.ph/login/ to subscribe. For our existing subscribers, you may access the report at this link https://firstmetro.com.ph/tmc-december-2022/