Growth forecast hiked anew

Business World
by: Kathleen A. Martin


CONSULTANCY GlobalSource Partners has hiked its 2012 Philippine growth forecast anew, citing robust domestic demand and continued government spending.

Economists Romeo L. Bernardo and Margarita D. Gonzales, in a Sept. 11, report upgraded their full-year gross domestic product (GDP) growth to 5.8% from 5.5%, near the high end of government's 5-6% target.

This is the third time the US-based consultancy has revised its 2012 outlook: from 4.5% last December, the forecast was changed to 5% in June then to 5.5% last Aug. 31.

The first recast followed better than expected GDP growth of 6.3% in the first quarter and the second came after the second quarter's 5.9% result.

Robust domestic demand should be able to bring full-year growth to between 5.5% and 6% this year, Mr. Bernardo and Ms. Gonzales said.

They noted this would be supported by remittances from Filipinos working abroad, although a peso strengthening may weaken the spending power of families receiving the money.

Aside from consumer demand boosting the economy, the economists said government spending would further drive GDP growth.

The recovery in public spending this year, especially on construction, has certainly helped boost domestic demand... With outlays still way below program government has some fiscal room to maneuver in the event of a downturn, Mr. Bernardo and Ms. Gonzales said, projecting a 2.5% deficit to GDP ratio.

The economists tagged a decline in exports a threat to growth as global uncertainties remained.

Another export slowdown remains a sharp risk, as muddling-through continues in advanced economies including the US, though we should see policy responses coming from China, they said.

There is also the possibility of a sustained uptrend in oil prices as Middle East tensions persist, Mr. Bernardo and Ms. Gonzales added.

The best case scenario, they said, would be a global turnaround leading to a pickup in exports and remittances.

This could also help unlock the billions of dollars in FDIs (foreign direct investments) reportedly pledged by foreign firms through the country's export-oriented special economic zones, they said.

In the worst case, there is sharp deterioration in the euro zone with a possible default of its weaker members, though we believe the fallout can be contained with coordinated global policy action.

Both economists, meanwhile, expect GDP growth to slow to 5.5% next year, again due to global uncertainties.

Still, 2013 being an election year, we may see upside surprises depending on how well the ruling party can mobilize domestic spending, Mr. Bernardo and Ms. Gonzales said.