Growth, inflation may fall within gov't targets

MANILA, Philippines - Growth and inflation may fall within government expectations this year, but a still slow spending may cause a lower budget gap, a global investment bank said in a report.

In the latest issue of the Asia Economics Monthly, Berlin-based Deutsche Bank sees the Philippine economy growing by 5.5 percent, inflation settling at 3.1 percent and National Government incurring a deficit equivalent to two percent of gross domestic product (GDP).

The growth forecast fell in line with the government’s five to six percent target, while inflation outlook hit the central bank’s forecast for the year. The deficit projection, however, is narrower than the 2.6 percent deficit-to-GDP target goal.

“Only the Philippine and Thai GDP forecasts have been revised higher – by 1.7 ppts (percentage points) and 0.3 ppts, respectively, this year – reflecting a strong start to the year,” Deutsche said in its June report.

The June growth forecast is an improvement from the 3.8 percent outlook for the Philippines by the bank last May. Likewise, Deutsche’s latest deficit-to-GDP forecast was narrower than the 2.5 percent projected in May. The inflation outlook was the same for both months.

“Growth far surpassed expectations in the (first quarter) and a history of relative insensitivity to US/EU growth fluctuations makes for a stable growth outlook,” Deutsche said.

“The Philippine economy grew about twice as fast in Q1 (first quarter) as we had expected… We estimate the long-run trend rate of growth at about five percent,” it added.

The Philippine economy grew by 6.4 percent in the first quarter, faster than the 4.9 percent recorded same period last year.

Deutsche said strong consumption and government spending as well as higher exports led to the stellar first quarter performance.

The government incurred a deficit of roughly P23 billion as of May, way below the P109.341-billion ceiling for the first half. During the period, expenditures rose by 13 percent, while revenues increased 11 percent.

Deutsche said low interest rates are also “important incentive” that allowed easy access to credit in order to boost growth. Inflation averaged three percent as of June allowing the central bank to retain its key rates at record-lows of four percent and six percent.