RP seen to grow 4.3% next year

Standard Chartered Bank is forecasting the Philippine economy to grow by 4.7 percent this year, slowing down to but a lower 4.3 percent in 2006.

Mike Moran, chief regional economist for Standard Chartered Bank said that the consumption side remains healthy and that "strong remittance inflows have more than offset the negative impact of oil prices or incremental increase in taxes."

"Domestically, consumption is the key driver for 2005, and will remain as such for 2006 against slowing exports," Moran said during an economic briefing sponsored by the Financial Executives Institute of the Philippines (Finex) yesterday.

However, growth in the gross domestic product (GDP) is seen to weaken to between 4.3 to 4.4 percent next year as the slowing US economy will pull down the Asia Pacific region, including the Philippines.

The bank economist said while the US economy is expected to do well for the rest of the year, by early next year, it will show signs of slowing down as interest rates and commodity prices will widen gaps. "As the US economy weakens, it will in turn impact on Asian exports and the Philippines is no exception."

Moran said he also expects the peso to remain at 55.50 to the dollar by end 2005, and will likely range from 55.50 to 56 next year.

The economic fundamentals for the rest of the year including positive developments on the full year fiscal deficit side, are among the underlying support for the peso.

"It also helps that the Philippine central bank has made it its policy target to stabilize the peso," Moran added.

Standard Chartered Bank likewise forecasts inflation to remain at roughly seven percent year-on-year, but at an average 7.5 percent for the whole of 2005. It is expected to improve to below six percent on the average next year.

But Moran warned about the political uncertainties that could disrupt the entire movement of the economy.

"Political uncertainties will be the major wild card this year and next year. How the charter change reforms come about, what the impact of the new value-added tax will be on consumption, the fiscal numbers and its impact on spending will be an unknown entity," he said, adding that the only saving grace would be better remittances revenues.

The global economy is forecast to continue its march forward, and that would be the key opportunity for Filipinos seeking employment, or for overseas Filipino workers (OFWs).

Earlier, the National Government lowered its growth forecast for both 2005 and 2006, blaming the high global oil prices. From its earlier 5.7 percent GDP target for the whole of 2005, it has been lowered to 5.3 percent.

For 2006, it was trimmed down from the optimistic range of 6.3 to 7.3 percent to the lower range of 5.7 to 6.3 percent.

The Asian Development Bank (ADB) likewise lowered its growth forecast to 4.7 percent from its earlier five this year.