Philippines to grow 5% in 2012

The ANZ Banking Group is forecasting growth of 5% in 2012 for the Philippines. This compares favourably with Australia’s forecast of 2.8% (from Westpac) with 1.3% growth shown during the first quarter of this year.

From BusinessWorld Philippines

June 07, 2012

ANZ maintains 2012 growth forecast, cites slowdown risk

AUSTRALIA and New Zealand Banking Group Ltd. (ANZ) has maintained its full-year Philippine economic growth forecast at 5% despite the blistering first quarter gross domestic product (GDP) expansion of 6.4%.

The bank, in its “Asia Pacific Economics: Philippines Update” report dated June 6, cited the risk of a global slowdown as the main reason for keeping its 2012 GDP forecast.

“[The 6.4% first quarter economic growth] indicates significant economic momentum, and also implies it would take sizable external setbacks or moderation in domestic demand to restrain GDP growth to less than 5% in 2012,” wrote Aninda Mitra, ANZ head for Southeast Asia economics and Vince Conti, economist.

“The main risk in [the second half] is a Europe-led slowdown which impacts the rest of Asia [excluding] Japan.”

Philippine exports, which are primarily composed of electronics, would be hit hard but Japan should have strong demand for them as it rebounds from the disastrous earthquake and tsunami in early 2011.

And while the US economy remains fragile this year, its prospects are better than last year and it should provide another buffer against risks to global growth.

China’s stimulus measures, moreover, should ensure it avoid a hard landing that would deflate regional demand.

Messrs. Mitra and Conti pointed out the Philippines is expected to weather any external shocks due to its strong external reserves, which totaled $76 billion as of May, while exposure to European banks has been estimated at only 6-7% of reserves.

Local banks have also remained well-capitalized with excess liquidity, they noted.

Messrs. Mitra and Conti said GDP growth this year will be supported by government spending.

With revenue collections strong, national government debt is expected to continue to decline from 50.9% of GDP last year, which was better than the 51.7% target and the 52.4% posted in 2010.

“The impeachment of the Supreme Court Justice paves the way for more focused economic policy implementation,” the two also wrote.

The conclusion of the trial will allow policy makers to focus on the passage of the “sin” tax bill into law, and the roll out of public-private partnership projects, among others.

ANZ warned inflation could rise in the second half, stoked by strong domestic demand. This could lead to a tightening in monetary policy if the inflation rate hit 4%.

“Despite rising global uncertainty, we think the Philippines’ is on the cusp of a virtuous cycle,” the two economists said.

If the country manages to get higher credit ratings and to post faster growth in national incomes, these will result in greater (foreign direct investment) inflows and economic diversification.” — Kathleen A. Martin

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