Credit Suisse hikes Phl growth forecast to 4.8%

MANILA, Philippines - Zurich-based Credit Suisse Group hiked anew its economic growth forecast for the Philippines, this time raising next year’s gross domestic product (GDP) growth on the back of improved political stability and the take off of the government’s major infrastructure program.

In a report, Credit Suisse economist Santitarn Sathirath said the investment bank raised its GDP growth estimate for the Philippines to 4.8 percent instead of 4.3 percent next year.

“We have revised up our 2013 GDP growth forecast for the Philippines to 4.8 percent from 4.3 percent, but have kept our sub-consensus 2012 estimate at 3.5 percent. We have become more optimistic about the country’s 2013 and longer-term GDP growth prospects in light of the improved political stability and positive developments in the infrastructure space,” Sathirath said.

Just last month, Credit Suisse raised the country’s GDP growth forecast to 3.5 percent instead of three percent for this year due to higher government spending and recovering exports sector.

“This reflects our view that some improvement in the structural drivers explained above will boost the long-term growth outlook while having little impact on 2012 GDP. We recently increased our 2012 growth forecast to capture the better cyclical export outlook,” he added.

This, according to him, would result in higher trend growth for the Philippines at around five percent instead of the current trend of 4.5 percent to 4.75 percent.

 “We continue to view the government’s emphasis on transparency and spending controls as being likely to put a lid on the cyclical growth outlook but also to benefit the longer-term growth outlook,” the economist explained.

The Cabinet-level Development Budget Coordination Committee (DBCC) sees the country’s GDP growth expanding between five percent and six percent instead of seven percent to eight percent this year.

Weak global demand and cautious spending by the Aquino administration pulled down the country’s GDP growth to 3.7 percent last year from 7.6 percent in 2010.

Sathirath is convinced that there are signs that the bottom of the economic cycle has been reached.

“Better growth in the US and the apparent turn in the global electronics cycle bode well for the country’s export and investment outlook. The nature of the Philippines’ exports (mainly electronics) and investment makes its growth more vulnerable to the global economic cycle,” he added.

He said one of the structural drivers of long-term GDP growth is the rate of capital accumulation, often measured by the real investment to GDP ratio.

The public private partnership (PPP) program of the Aquino administration is expected to finally take off this year.

So far, the Bangko Sentral ng Pilipinas (BSP) has so far slashed interest rates by 50 basis points to boost the economy.

The BSP slashed interest rates by 25 basis points last January 19 and by another 25 basis points last March 1 due to benign inflation outlook and fragile global economic growth.

This brought the overnight borrowing rate back to a record low level of four percent and the overnight lending rate to six percent.