With consumers and firms eager to normalize, the coming Christmas season should further boost employment which saw more jobs especially in Trade and Transport & Storage sub-sectors. Thus, we expect Manufacturing output to rise further in Q4 even as NG ratchets up spending on infrastructure and agriculture. The unexpectedly strong tax collections have led to lower projected debt-to-GDP to 63% - 64% in 2022. Elevated inflation remains as the only sore point, but as pointed out earlier, its negative effect on consumer spending should be muted by higher peso incomes of OFWs, BPO workers and exporters. We, thus, see GDP growth in 2022 of 6.5%, at the upper end of our projections, while we may expect an inflation rate of 6.9% in October.
Fixed Income Outlook
With stubbornly high inflation, rising policy rates, and heightened recession fears, global bond markets experienced a dramatic selloff in September. Domestically, lackluster demand pushed yields to surge across the curve with the trading volume in the secondary market lower by -26.5% MoM. The risk mood remains fragile in October as markets price in a 75 bps Fed rate hike on strong employment gains. We should see this rise further to 4.25% - 4.50% with the last two FOMC meetings for the year. However, we expect local yields to see a sharp drop by Q1-2023 due to base effects and likely easing of crude oil prices with the global slowdown.
Global investors exited from emerging markets (EMs) in September as risk-aversion set in and hit Philippine shores, thus PSEi crumbled by -12.8% in September. The decrease in crude oil prices in August led investors to be optimistic; however, this later on evaporated in September as interest rate increases and persistent inflation emerged. Some investors, on the other hand, may consider acquiring highly oversold stocks in the Property sector, likewise energy-related firms. If the GDP Q3 figures exceed expectations of 5.7%, we expect the PSEi to go above 6,000 by November as investors would position themselves before the end of the year for a better 2023.