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Growth forecast for the Philippine economy
« on: February 02, 2013, 01:05:37 AM »
By Joann Santiago

Zurich-based UBS Investment Bank upgraded its growth forecast for the Philippine economy for this year and 2014 given the above-target expansion of the domestic economy in 2012.

In a research note, the investment bank now eyes a 6.3 percent growth for the domestic economy this year from 4.5 percent previously and 5.6 percent for 2014, higher than the earlier forecast of 4.9 percent.

Last year, the domestic economy expanded, as measured by gross domestic product (GDP), by 6.6 percent, higher than the government’s five to six percent target.

In the report dubbed “Philippines: Looking good”, UBS economist Edward Teather said he earlier expected weaker exports to negatively impact growth in the second half of last year.

“Instead domestic spending has boomed. Easy financial market conditions, election spending and a recovery in global trade momentum promises support to the elevated pace of growth in the immediate future,” the report said.

Citing government figures, the report said domestic spending remained to be among the strong driver of growth with real consumption activity rising 6.9 percent year-on-year while government spending went up by 9.1 percent.

Exports rose by 9.1 percent in real terms but four percent only in nominal terms “implying a decline in unit prices” and investments jumped by 10.6 percent in real terms “primarily due to an increase in construction activity.”

The report, on the other and, noted that share of investment in nominal GDP is still low at under 20 percent in the last quarter and the whole of 2012.

“That mars an otherwise strong release since it is a focus on the accumulation of capital that Philippines needs if it is to take full advantage of the demographic dividend afforded by a growing population and falling dependency ratio,” it said.

Meanwhile, UBS expects a drop in the country’s current account surplus this year as the need to spend more will mean higher dollar demand to pay this requirement.

”Strong domestic growth in the context of weaker global momentum raises the risk that spending growth gets ahead of income, leading to deterioration in the external balance of the economy,” it explained.

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