Friday, 4 September 2009

Analysts see Philippine growth accelerating in the second semester

Paolo Luis G. Montecillo and Jhoanna Frances S. Valdez

ECONOMIC GROWTH will likely accelerate in the remaining months of the year as domestic demand continues to strengthen on the back of benign inflation and steady growth in remittances, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said in their joint publication, Market Call, which they released late last Wednesday.

This optimism was shared by the Congressional Planning and Budget Department (CPBD), the think tank of the House of Representatives which released its September report yesterday that showed revised, higher growth projections for the year.

FMIC and UA&P said growth in gross domestic product (GDP) will likely hit 2.5% and 4.5% in the third and fourth quarters of the year, respectively.

"Most recent economic indicators are blinking more positively, giving an impression that the ’green shoots’ noticed earlier are beginning to sprout...We remain more optimistic for GDP growth in the second half of the year," the August issue of Market Call read.

While the report was prepared before the government released the second quarter data last Aug. 27, Market Call author Victor A. Abola, economist of UA&P, said in a phone interview yesterday that they were keeping their projections.

For his part, CPBD Director-General Rodolfo V. Vicerra said his group has raised its full-year GDP growth projection to 1.1%-1.9% from the earlier 0.6%-1.8% estimate.

"With the Philippine economy narrowly escaping a technical recession [in the first half], CPBD simulations indicate a slightly more sanguine economic outlook for 2009, with full-year GDP growth reckoned to range between 1.1%-1.9%. This is an upward revision from the CPBD’s projection last May, ranging from 0.6%-1.8%," his report read.

"Our outlook is a bit more optimistic than the official target range of 0.8%-1.8% adopted by the Development Budget Coordinating Council in June [but which is expected to be raised in a meeting next week.]"

CPBD revised its projections across all sectors: services are now expected to grow by a faster 2.4%-3% from an earlier 1.5%-2.6% projection; the industry sector to post a smaller contraction of -0.2% to -1.1% from an earlier forecast of -0.4% to -1.9%; as well as agriculture, fishery and forestry sector to grow by a slower 1.6%-2.2% from an earlier 2.7%-3.6% estimate due to the impact of an emerging El Niño condition in the Pacific.

Official data released last Aug. 27 showed the country posting GDP growth of 1.5% in the second quarter of the year, topping most forecasts for the period. This was also faster than the 0.6% year-on-year growth notched in the first quarter.

Aside from low inflation and growth from remittances from overseas Filipino workers (OFW), Market Call said a recovery in exports towards the end of the year will also help boost GDP growth.

The decline in exports decelerated for the second month in a row in June to 24.7% from the 26.9% drop posted in May.

"This is supportive of the view that economies of major markets around the globe are slowly recovering," Market Call said.

CPBD now expects merchandise exports to decline by 13.6%-16.7%, better than its earlier projection of -14.5% to -19.4%, even as demand for the country’s top exports — semiconductors and garments — remain weak amid a slow global recovery.

The government forecasts a contraction in exports ranging from -13% to -15% this year, but officials earlier this week said the actual result may turn out to be worse, given the weaker-than-expected recovery among the country’s major trading partners.

"[But] June marks the second consecutive month of contraction at a slower rate. In the following months, we can expect further improvement in exports as inventories are beginning to be built up in our export markets for the coming holiday season," Market Call said.

Likewise, remittances from overseas Filipino workers (OFWs) are expected to sustain their strong performance for the rest of the year, bucking earlier forecasts of a decline. OFW remittances, which made up about a tenth of GDP last year, grew 2.9% in the first half of the year.

"The [first half] figures of OFW remittances support our expectation...that it will post a flat to even positive growth this year. It also is supportive of economic growth for the country in the first half, given its significance to domestic consumption," Market Call said.

The Bangko Sentral ng Pilipinas expects remittances to just match last year’s level of $16.4 billion.

UA&P’s Mr. Abola said that although remittances have grown by single-digit rates so far this year, the benefits are amplified because of the peso’s depreciation. He said a weaker currency compared to last year means more pesos ending up in remittance recipient’s hands. In real peso terms, he said remittances grew 11.9% as of June.

Meanwhile, FMIC, the investment arm of the country’s second largest bank Metrobank, said inflation will likely stay subdued this year, indicating stability in consumer prices. The firm’s report said oil and food prices, which drove inflation to a record high last year, will remain stable this year on the back of continuing tempered demand.

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