MANILA, Philippines - Zurich-based Credit Suisse has hiked its economic growth forecast for the Philippines to 3.5 percent instead of three percent this year on the back of higher government spending and recovering exports sector.
Santitarn Sathirath, an economist of Credit Suisse, said in a study that both exports and government spending that served as key factors holding back growth last year are now showing signs of turnaround this year.
“We are increasing our 2012 real GDP growth forecast to 3.5 percent from three percent earlier,” Sathirath said.
The investment bank said the country’s merchandise exports would pick up starting the second quarter due to improving semiconductor book-to-bill ratios and would support both the GDP and current account balance assuming there is no full-blown European crisis.
Furthermore, he pointed out that Credit Suisse sees improvement in the government’s budget disbursement with the launch of the Public Private Partnership (PPP) scheme after cautious spending by the Aquino administration last year.
“We think the key tool for boosting growth is fiscal policy as the government is looking to put $16 billion or about seven percent of GDP in rail and airport projects. These planned expenditures form part of the government’s spending plan,” he added.
The government hopes to keep the country’s budget deficit to 2.6 percent of GDP this year after trimming the shortfall to two percent of GDP last year due to cautious spending.
“While we remain cautious about the execution of policy, we have seen some promising signs that the government can deliver the promised spending when it really wants to,” he said.
The country’s GDP growth slackened to 3.7 percent last year from 7.6 percent in 2010 due to the weak global trade and government underspending. This year, the Cabinet-level Development Budget Coordination Committee (DBCC) sees the country’s GDP expanding between five percent and six percent.
Sathirath also pointed out that Credit Suisse decided to slash its inflation forecast to 3.2 percent instead of 3.7 percent that could boost household real spending.
“While year-on-year inflation is likely to pick up in the second half of the year, the speed of increase will depend largely on global oil prices as the government will not subsidize fuel prices,” he said.
According to him, a Dubai oil price of around $120 per barrel is still manageable for the Bangko Sentral ng Pilipinas (BSP) that has set an inflation target of between three percent and five percent this year and next.
After cutting interest rates by 50 basis points so far this year, the economist said the BSP would likely keep the overnight borrowing rate at a record low of four percent and the overnight lending rate at six percent this year.
“The BSP is likely to stay put for the rest of this year. We maintain our expectation that the BSP will keep the policy rate at four percent going forward. The policy rate is already at its lowest level,” Sathirath said.