UBS hikes Phl growth forecast to 6.3%

MANILA, Philippines - Global investment bank UBS has upgraded its economic growth forecast for the Philippines this year from 4.5 percent to 6.3 percent, and from 4.9 percent to 5.6 percent for 2014.

The Philippine government is targeting gross domestic product (GDP) growth of between six to seven percent this year, and 6.5-7.5 percent in 2014.

The economy grew 7.6 percent in 2010, 3.9 percent in 2011, and 6.6 percent in 2012.

UBS Investment Bank’s Asian economics team executive director and senior economist Edward Teather likewise said he sees the peso strengthening to 39.50 to the dollar by yearend.

We are looking at a slowdown in 2014, after the possible exceptionally environment of two consecutive growth of over six percent,” Teather said, pointing to the 6.6-percent growth rate in 2012 and the anticipated growth of over six percent this year.

The UBS economist likewise explained that after an election year, the economy will not benefit from election-related spending until 2016, so that election spending will not contribute to 2014 growth.

Interest rates in the Philippine have fallen and policy rates have been cut down by 100 basis points (bps) in the last 12 months. Likewise, rates of special deposit accounts (SDA) had been cut over two percent.

“Money market and Treasury bill (T-bill) rates are close to zero, and it is unlikely to fall even further, with the currency strength further adding to a correction in 2014,” the UBS executive director added.

UBS expects remittances from overseas Filipinos to remain resilient and continue to contribute to domestic spending.

But the strengthening of the peso vis-à-vis the dollar, and domestic growth continue to march forward, remittance as a share of GDP has been edging lower.

But domestic demand will still grow faster than the remittance contributions, so both remittances and current account surplus will fall as a share of GDP.

“A current account deficit however is still not in the horizon,” Teather said.

The country’s equity market is sending a signal similar to what the low interest rate environment is saying, that is, there are funds ready to be put to work in the Philippines.

The equity market is offering cheap capital for both the corporate as well as individual investors.

Recently, the LT Group raised $912 million in equity, while Melco Crown Philippines raised $332 million. In the pipeline are initial public offerings of Asia United Bank, Travellers International, Cosco Capital and the National Bookstore.