Standard Chartered revised up 2011 economic growth forecast for the Philippines to 5.7 percent

Economy: British-owned Standard Chartered Bank revised upwards its 2011 economic growth forecast for the Philippines to 5.7 percent from the original 5.4 percent.

In a research note, Standard Chartered economist Vincent Tsui said the investment bank raised the country’s GDP growth forecast to 5.7 percent instead of 5.4 percent this year due to the projected strong investment inflows in the second half.

“In anticipation of more broad-based and sustainable growth dynamics ahead, we raise our 2011 GDP forecast to 5.7 percent from 5.4 percent previously. We expect growth momentum to pick up in the second half,” he stressed.

Tsui said the investment bank raised its GDP growth forecast for the third quarter of the year to 6.4 percent instead of six percent but lowered its growth forecast in the fourth quarter to 6.8 percent instead of seven percent.

“We expect the strong investment pipeline to remain a key growth driver in the coming quarters. While we expect headline GDP growth to slow further in the second quarter due to the high base effect and temporary disruptions to electronics manufacturing from the Japan earthquake, the underlying  fundamentals of the economy remain solid. We believe headline GDP growth is set for a strong rebound in second half,” Tsui added.

He pointed out that the growth in the second half would be fuelled by investments instead of consumer spending.

“Near-term weakness aside, we believe the shift from consumer spending to business investment as the Philippines’ key growth driver deserves more market attention,” Tsui added.

The National Statistical Coordination Board (NSCB) reported late last month that the country’s GDP growth slowed down to 4.9 percent in the first quarter of the year from the revised 8.4 percent in the same period last year due to weaker government spending and slow global trade. The National Economic and Development Authority (NEDA) was expecting a growth of between 4.8 percent and 5.8 percent for the first quarter.

“Even so, we believe the weaker headline numbers mask underlying strength in an economy that is now driven by more sustainable and balanced growth dynamics,” the economist said.

The sharp drop in government spending in the first quarter of the year helped the Aquino administration post a budget surplus of P61 billion in the first four months of the year, a complete reversal of the P131.6 billion budget deficit booked in the first four months of last year.

“This is in line with our expectation that this year’s budget deficit will narrow to P256 billion due to fiscal prudence and stronger tax collection on the back of buoyant domestic demand,” Tsui said.

The Aquino administration hopes to trim the budget deficit to P300 billion or 3.2 percent of GDP this year from a record level of P314.5 billion or 3.7 percent of GDP last year. It has committed to trim the deficit to two percent of GDP starting 2013 until the end of the term of President Aquino on 2016.

Standard Chartered reported that inventory restocking particularly of durable equipment resulted to a sharp 37 percent rise in gross capital formation in the first quarter of the year reflecting the booming investment activity in the country.

It added that remittances from overseas Filipino workers (OFWs) remained strong despite the tensions in the Middle East and North African (MENA) states as well as the disaster in Japan while foreign direct investments (FDIs) would pick up later this year in light of the public private partnership (PPP) scheme of the Aquino government.

“The launch of 10 infrastructure projects this year as part of the government’s PPP initiative is also expected to attract $1 billion of FDI inflows and support construction-related sectors,” Tsui explained.

Tsui said the investment bank sees the country’s GDP expanding by six percent in 2012 and 2013.

The Philippines posted its strongest growth in 34 years after its GDP expanded by 7.6 percent last year exceeding the revised growth forecast of five percent to six percent set by economic managers. It was on the verge of a recession when its GDP growth slowed down to 1.1 percent in 2009 from 3.8 percent in 2008 due to the full impact of the global financial crisis.

The Cabinet-level Development Budget Coordination Committee (DBCC) has set a GDP growth target of between seven percent and eight percent this year and next year.

Bangko Sentral Governor Amando Tetangco Jr. said the country’s GDP would grow slower than expected this year as the economic growth targets were set by the DBCC prior to the tensions in the MENA region and the disasters in Japan.

“We think the economy will continue to grow this year. The government is projecting seven percent to eight percent although that projection was arrived at prior to the events at the MENA region as well as the earthquake, the tsunami and the nuclear disaster in Japan,” Tetangco said earlier.