Elevated NG spending should provide the stimulus for Q3, even as we expect a strong rebound in employment and consumer spending starting September. The Industry sector expansion will be broad-based, although Manufacturing will take the lead. The Services sector should see domestic and foreign tourism drive Trade, Transportation & Storage, and Accommodations & Food Services starting September. We still see sufficient strength in the economy to get a 5.0-5.2% YoY Q3 GDP growth, while the acceleration of the above sectors plus consumer spending should bring back Q4 growth above 6%. Thus, we still see full year GDP growth at a respectable 5.5% despite the global slowdown.
Fixed Income Outlook
Market uneasiness returned in August amid higher U.S. Treasuries on the back of inflation woes, a hawkish Fed, and stronger-than-expected U.S. economy. Locally, the trepidation resulted more in a decline in volume in both primary and secondary markets rather than in yields in August. Furthermore, local yields initially jumped in September following the faster August inflation print at 5.3%. We see the recent crude oil and rice price gains as transitory with inflation likely heading back to within target in Q4. Given the inflation outlook and pause in monetary tightening from the BSP and Fed, we expect sideways movements, with a slight northward bias, in the local 10-year yields, which should last until end of 2023.
PSEi will move sideways in September between 6,000 and 6,350 as investors scrounged for some good news. While PE reached lows last seen during the World Financial Crisis, local investors seem hindered by higher interest rates and margin calls. However, we keep a constructive outlook, especially with regard to oversold issues and high dividend plays.