DBS Bank upgrades RP growth forecast

MANILA, Philippines - Singapore-based DBS Bank Ltd. has upgraded the country’s gross domestic product (GDP) growth forecast for this year and next after a surprising economic rebound in the first half as well as the projected investment inflows resulting from the public-private partnership (PPP) initiative of the Aquino administration.

In its Economic Markets Strategy report for the fourth quarter, DBS said it has upgraded its GDP growth forecast to 6.5 percent instead of 4.5 percent this year and to five percent instead of 4.9 percent next year.

The new GDP growth forecast this year was higher than the revised growth target of five to six percent set by the Cabinet-level Development Budget Coordination Committee (DBCC) but next year’s projection was lower than the government target of seven to eight percent.

Despite the upgrade, the Philippines would still lag behind its neighbors in Southeast Asia. The country’s GDP growth pales in comparison with that of Singapore’s 15 percent, Taiwan’s 9.5 percent, Thailand’s nine percent, Malaysia’s eight percent and Vietnam’s 6.5 percent. Indonesia’s GDP, on the other hand, is expected to expand by six percent.

The investment bank said it believes the government’s PPP initiative would help put the Philippines back on the high growth path.

The National Statistical Coordination Board (NSCB) reported earlier that GDP growth averaged 7.9 percent in the first half of the year from1.2 percent in the same period last year. GDP expanded by 7.9 percent in the second quarter and by 7.8 percent in the first quarter.

The strong growth experienced in the first half of the year was brought primarily by the national and local elections last May 10, the huge capital spending boost due to the reconstruction efforts after typhoons Ondoy and Pepeng late last year, as well as baseline effects brought about by the low GDP growth last year.

The Philippines barely escaped recession after the GDP growth slackened to 1.1 percent last year from 3.8 percent in 2008 due to the full impact of the global economic meltdown.

DBS said it sees inflation averaging four percent this year and 4.4 percent next year or well within the targets set by the Bangko Sentral ng Pilipinas (BSP). The BSP has set an inflation target of 3.5-5.5 percent this year and three to five percent between 2011 and 2014.

Last Aug. 26, the central bank’s Monetary Board decided to maintain this year’s inflation forecast at four percent but raised next year’s forecast to 3.25 percent instead of three percent due to the continued higher-than-anticipated economic growth in the first half, higher oil prices, petitions for electricity rate hike, the imposition of the 12 percent value-added tax on toll as well as the impending MRT-LRT fare hike.

For 2012, the BSP sees inflation averaging 2.97 percent.

DBS noted that the BSP seemed not in a hurry to raise its key policy rates due to the benign inflation outlook.

“Our best guess is that the Philippines will start to lift rates in December or first quarter of 2011,” it stressed.

The BSP has slashed its key policy rates by 200 basis points between December of 2008 and July of 2009. This brought the overnight borrowing rate to a record low of four percent and the overnight lending rate at six percent.