Analysts hike Phl growth forecasts

MANILA, Philippines - Analysts have begun upgrading their growth forecasts for the Philippines this year, following above-target growth of 6.6 percent in 2012.

“Easy financial market conditions, election spending and a recovery in global trade momentum promises support to the elevated pace of growth in the immediate future,” UBS economist Edward Theater said in a research note.

The Philippine economy grew 6.8 percent in the fourth quarter of 2012, bringing full-year growth beyond government and market expectations. The Aquino administration, which has targeted a five to six-percent growth, had forecast a 6.5-percent expansion.

For this year, UBS said growth could slow to 6.3 percent, although this is faster than its original outlook of 4.5 percent. It also revised upwards its 2014 projection to 5.6 percent from 4.9 percent.

The government has a six to seven-percent growth target for this year.

Domestic spending would continue to drive growth, amid a still-fragile global economic environment that dents export demand. The combination of low inflation, strong peso and low interest environment will also work on the Philippines’ favor, Theater said.

For 2013, the Bangko Sentral ng Pilipinas (BSP) is not likely to lower further its policy rates, now at a record low of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending. Instead, a “normalization of interest rates” could happen later this year, although this will be “modest” to avoid attracting huge inflows.

For her part, Prakriti Sofat, regional economist at Barclays, said the Philippines could expand 5.9 percent this year, faster than its original estimate of 5.5 percent, on the back of “expected election-related boost to growth” and improving external demand.

The country will conduct senatorial elections this year, which is expected to pump prime spending and in effect boost growth. Sofat said history shows economy usually gets boost from election spending “one to two quarters before the ballots.”

“Given relatively robust domestic demand and rising inflationary risks, we expect the BSP to keep the policy rate unchanged at 3.5 percent well into this year, though we also expect

it to start withdrawing monetary stimulus in (the fourth quarter) with a 25-basis-point hike,” she pointed out.

On the other hand, Pauline Mary Ann Revillas, research analyst at Metropolitan Bank and Trust Co., said expansion will be supported by continued inflow of remittances overseas. BSP data showed remittances grew six percent as of November last year, surpassing official five-percent forecast.

Revillas said this would result in strong consumer spending that could boost growth to as much as six percent in 2013.

“Construction is expected to sustain its growth on accelerated government spending ahead of the congressional elections and the roll-out of PPP (public-private partnership) projects this year,” she said in a separate research note.