MANILA, Philippines – Singapore-based DBS Bank Ltd. sees the country’s economy improving by 4.2 percent this year and 5.2 percent next year on the back of the ramp up in government spending and low interest rate regime.
In a report, DBS economist Eugene Leow said that growth would accelerate this year and next year as poor external demand and insufficient support from domestic demand have reversed.
“This should translate into GDP growth of 4.2 percent in 2012 and 5.2 percent in 2013,” Leow said.
The country’s GDP growth slackened to 3.7 percent last year from 7.6 percent in 2010 due to weak global trade brought about by economic uncertainties in advanced countries led by the US as well as the debt crisis in the US and cautious spending by the Aquino government.
“However, the situation has changed for the better. In the coming quarter, domestic demand will be bolstered by low interest rates and a ramp up in government spending,” Leow said.
He also cited the imminent recovery of the country’s electronics sector this year.
The investment bank sees the country’s GDP expanding by 3.5 percent in the first quarter of the year, 4.2 percent in the second, 4.6 percent in the third, and 4.5 percent in the fourth quarter.
The Cabinet-level Development Budget Coordination Committee (DBCC) sees the country’s GDP expanding between five percent and six percent this year.
DBS said government consumption would expand by 7.9 percent this year and 4.1 percent next year due to the public private partnership (PPP) scheme after contracting by 0.7 percent last year while private spending would grow at a slower pace of 5.5 percent this year and five percent next year from 6.1 percent last year.
“Government spending should also be kicked up several notches in the first half of 2012 as the authorities continue to frontload expenditures… Once the projects are bid out, the resulting positive investment on investment growth should start to materialize in the second half,” he said.
Leow said DBS sees the country’s inflation averaging four percent this year, and 4.7 percent next year allowing the Bangko Sentral ng Pilipinas (BSP) to keep interest rates low to boost consumption.
He added that the extended period of low interest rates would be supporting of credit and economic growth.
The BSP sees inflation averaging between three percent and five percent this year and next year.
The BSP has so far slashed interest rates by 50 basis points, bringing the overnight borrowing rate back to a record low of four percent and the overnight lending rate at six percent.
Although inflation would be on a mild updrift from mid-2012, Leow said it should not prompt monetary tightening this year and would likely happen in the first quarter of next year.