MANILA, Philippines - Philippine growth forecasts were revised upwards by investment bank Barclays as the country’s sound fundamentals are magnified by a “reform-focused†government seen to attract confidence from both local and foreign investors.
In its Emerging Markets Research released yesterday, Barclays said Philippine economic growth could have hit 6.5 percent last year before it decelerates to 5.9 percent in 2013. These figures are stronger than the November forecasts of 6.2 percent and 5.5 percent, respectively.
Against government’s targets, however, last year’s outlook beat the five to six- percent goal, while this year’s forecast fell below the six to seven-percent objective.
Inflation, on the other hand, is seen to accelerate to 4.1 percent this year, faster than last year’s 3.2 percent and up from Barclays’ November outlook of 3.8 percent. The revised figure is still within the BSP’s three to five-percent target.
“Based on experience of previous ballots, election-related spending typically boosts growth one to two quarters before the elections. In addition, export performance is gradually improving in line with external demand,†Barclays said.
“The policy environment remains supportive and we believe consumption momentum will continue even after the mid-term elections in May. We maintain our view that government capex (capital expenditure) spending will continue to improve in 2013,†it explained.
“However, robust growth suggests potential inflation risks ahead,†it added.
In addition to faster inflation, the central bank would likewise worry about a strong peso likely to reach 39.50 against the dollar this year, prompting it to impose more macroprudential measures. A strong currency trims the value of dollar export earnings and remittances of overseas Filipinos.
“Over the medium term, we remain constructive on the peso given robust growth and balance of payments, a reform-oriented government and an improving ratings trajectory,†Barclays said. The peso weakened at 40.66 to a dollar yesterday, down from Friday’s 40.61 to $1.
A strong economy would also benefit state debt papers, it explained, with planned foreign issuances of up to $1 billion in 2013 likely to enjoy good investor reception. Global peso notes will be an investor favorite.
All these, complemented by “progress†in the bidding of public-private partnership (PPP) projects, point to the Philippines bagging its first investment grade by the second half of 2013, Barclays said.
“We continue to believe the pace and size of PPP projects awarded are key for the sovereign’s credit ratings and downside surprises could pose a risk,†the bank said. Last year, the government rolled out eight PPP undertakings as planned.
“With the Philippines’ credit metrics outperforming the group, there is a possibility that the Philippines could be upgraded to investment grade ratings sooner than expected,†it added.