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Foreign firms raise Philippines' growth forecasts

Publication Date : 11-09-2012


Global financial institutions Credit Suisse and Bank of America-Merrill Lynch have upgraded their economic growth forecasts for the Philippines this year following the better-than-expected first-semester performance, but both tempered their outlook heading into 2013.

Regional player Development Bank of Singapore (DBS) also raised its growth forecast for the Philippines to 5.6 per cent for this year, but cut its growth projection to 5 per cent for 2013. In its latest research paper, DBS said it now expects the Philippines to grow faster this year than the earlier projection of 5.3 per cent. The upward adjustment took into account the economy’s better-than-expected performance in the first half.

“The Philippine economy has been a clear outperformer thus far this year, registering high growth rates and low levels of inflation,” DBS said in the paper released yesterday. The financial services firm said robust consumption would continue to fuel a healthy growth rate in the second half.

Credit Suisse jacked up its year-on-year Philippine gross domestic product (GDP) growth forecast for this year to 5.4 per cent from 4.5 per cent but shaved its 2013 estimate to 4.5 per cent from the earlier outlook of 4.8 per cent.

Merrill Lynch revised its 2012 GDP growth forecast slightly higher to 5.7 per cent from 5.6 per cent but also trimmed its 2013 estimate to 5.5 per cent from 5.7 per cent.

The forecasts of both Credit Suisse and Merrill Lynch exceed the 4.9-per cent market consensus for Philippine growth based on the August poll of Consensus Economics. But for next year, BoFA Merrill Lynch’s forecast is higher than the current consensus forecast of 5.1 per cent although Credit Suisse’s outlook is lower.

“While the base for exports going into third quarter is not favourable, we think domestic demand and government spending will continue to offset the external weakness,” Credit Suisse said in a commentary dated August 30.

The Philippine economy expanded 6.1 per cent year on year in the first semester. Second-quarter growth was at 5.9 per cent against the market consensus of 5.5 per cent.

In a separate commentary dated August 30, BoFA Merrill Lynch projected that government spending would likely taper off this second half of 2012, which might bring GDP growth to around 5.4 per cent this semester.

“Apart from slower government spending, a strong peso may also soften GDP growth as this would undermine export growth, the business process outsourcing (BPO) sector and purchasing power of families dependent on overseas Filipinos’ income,” said the commentary written by analyst Jojo Gonzales of Philippine Equity Partners, the local research partner of Merrill Lynch. “Government consumption may also be slower but public infrastructure spending should help offset the uneven growth in private investments.”

The changes in GDP forecast, according to the BoFA Merrill Lynch report, would hardly affect its sector preferences in the Philippines: properties, banks and infrastructure-linked conglomerates.

Credit Suisse said the first-semester data supported its view that sequential GDP growth might soften from the “extremely strong print” seen in the first quarter as the boost from electronic export faded. In addition to the robust private consumption growth, Credit Suisse added that investments would likely play a more prominent role in boosting growth this year.

The institution said it was still optimistic on Philippine growth this year. “The downward revisions for 2013 GDP growth mainly reflect more difficult statistical base effects,” it said.


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