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S&P sees economy growing faster than govt forecast

Thursday, 04 February 2010 08:59

Source: The Manila Times
By: Lilany P. Gomez and Darwin G. Amojelar

Credit ratings firm Standard and Poor’s sees that the Philippine economy would grow faster than government forecast on the back of the recovery in external demand. Agost Benard, S&P associate director for sovereign ratings, said the country’s economy, as measured by the gross domestic product (GDP), would grow 3.7 percent this year from an estimated 1 percent in 2009.

The government is projecting that the economy may grow between 2.6 percent and 3.6 percent this year.

“While overall economic growth was badly affected by the precipitous decline in external demand, domestic consumption proved mostly resilient, preventing the economy from slipping into recession,” Agost said.

Despite the collapse of external demand, however, the Philippines’ overall balance of payments and reserves position continued to improve.

“As the export sector recovers and remittance flows revert to normal, external liquidity is expected to continue improving in the year, with further upside potential if election outcomes and subsequent policies succeed in boosting foreign capital inflows,” the analyst said.

Benard said the presidential elections this year will be crucial, as the incoming administration will be responsible for advancing fiscal reforms and generating domestic and foreign investment growth to lessen reliance on private consumption.

But this same private consumption would be the main driver for growth in the first quarter, First Metro Investment Corporation’s (FMIC) and the University of Asia and the Pacific (UA&P) said in a research note.

FMIC-U&AP said the economy is likely to grow 4.5 percent from January to March this year, up from the actual 0.9-percent growth in the same period last year, and significantly higher than Department of Finance’s GDP growth projection of 2.6 percent in the same period.

“We see economic growth accelerating in 2010 [first quarter] as a result of the ongoing campaign for the upcoming national elections and the rebound of exports,” FMIC and UA&P said in a research note.

For the first half, FMIC-UA&P said the economy may expand to 5 percent with the energized overseas Filipino remittances, continued residential housing construction, and heightened election spending until May 2010.

The report also said that overseas Filipino workers (OFWs) remittance growth in dollar terms will remain single digit in the first quarter of the year, moving in a tight range of 4 percent to 6 percent, but in peso terms this will be closer to zero, thus giving little added stimulus to the economy.

“With portfolio investments exiting and direct foreign investors at a stand still, while awaiting the outcome of national elections in May, and an expanded trade deficit, as well as a strengthening of the US dollar, we expect a weaker peso for the rest of first quarter,” FMIC-UA&P report said.