GDP growth seen easing to 5.4% in 2011

MANILA, Philippines - UK-based Standard Chartered Bank sees the country’s economic growth slowing down next year on the back of overheating concerns after posting a strong growth this year.

In a report, Standard Chartered Bank said the economy, as measured by gross domestic product (GDP) would grow by a slower 5.4 percent next year from the projected strong expansion of 7.2 percent this year.

“We expect the economy’s strong comeback in 2010 to carry over into 2011, eventually confronting authorities with overheating concerns,” the bank said.

The bank’s GDP forecast next year would be slower than the seven percent to eight percent target set by the Cabinet-level Development Budget Coordination Committee (DBCC). This year’s GDP growth projection of 7.2 percent is faster than the target of five percent to six percent set by the economic managers.

The country’s GDP posted a surprising growth of 7.5 percent in the first three quarters of the year from 0.5 percent in the same period last year. The GDP expansion, however, eased to 6.5 percent in the third quarter after expanding by 8.2 percent in the second quarter and 7.8 percent in the first quarter.

Standard Chartered said investment growth started to recover this year while remittances from overseas Filipino workers (OFWs) continued to drive private consumption.

“The latest data have shown renewed momentum in export growth in late 2010 as shipments to other Asian markets surge, paving the way for the trade sector to contribute to headline growth in the coming quarters,” the investment bank added.

It said the country’s inflation rate would remain benign this year despite the sharp rise in global food prices.

“We think the biggest threat to medium-term price stability arises not from external shocks but from the narrowing output gap in the domestic economy - especially if the central bank is forced to delay meaningful tightening for fear of encouraging further capital inflows into the country,” the bank said.

Meanwhile, a New York-based think-tank said the economy may grow anywhere from five percent to 5.5 percent in 2011 on expectations that dollar remittances from overseas Filipinos would remain robust.

Global Source said growth is expected at around “five to 5.5 percent next year given continued robust remittance growth, still strong corporate earnings, and high business confidence and trust in the new administration.”

This projection is within the official forecast growth range set by the interagency Development Budget Coordination Committee (DBCC) next year of five percent.

The report, co-authored by former Finance Undersecretary Romeo Bernardo also said that the low interest rate environment in the country remains conducive to growth as it would encourage banks to lend which in turn would encourage economic activities.

It noted that short-term Treasury yields have been on a freefall over the last month prompted by a credit rating upgrade from Standard & Poor’s Rating Services.

The global debt watcher raised its foreign currency sovereign credit rating on the Philippines to BB from BB-. The outlook on the ratings is stable.

The smooth presidential and national elections in May set the scene for improved political stability, S&P also said.

Global Source said growth may have already begun to moderate as fiscal stimulus injected by the government had begun to fade.

 “Growth may already have begun to moderate, with seasonally-adjusted output shrinking by 0.5 percent during the third quarter from growth of 1.4 percent previously. This has been a regional trend where other Asian economies have similarly lost momentum,” Global Source said.

The think-tank had expected growth to slow down next year because of the disappearance of one-time growth drivers such as election-related spending this year.

Nevertheless, Global Source said it continues to see a 6.5 percent to seven-percent growth for this year given the 6.5-percent economic growth in the third quarter and the 7.5 percent cumulative growth for the first three quarters.

Furthermore, the think-tank said private spending contributed steadily to growth even though there had been a pullback in government consumption.

The Aquino administration expects the economy to grow anywhere from five percent to six percent this year.