UBS raises growth forecast for RP in 2010

INVESTMENT BANK UBS has upgraded its growth outlook for the Philippines for 2010 alongside a modest global recovery and benign inflation prospects.

UBS also sees a long-term bearish trend for the dollar, which could fuel a peso appreciation against the greenback to about 44:$1 by end-2011.

In a briefing Thursday, visiting UBS global economist Paul Donovan cautioned against over-optimism on the global economic rebound, noting that small businesses in Western economies were still facing tough economic conditions and that banks were still lending below normal levels.

If he were to characterize the pace of global recovery, Donovan said it’s like the swoosh in the Nike trademark—the world is seeing a recovery but it may not be as good as the financial markets are hoping for.

“But from the perspective of Asian economies, the good news is things are getting better,” Donovan said.

Supported by pent-up demand, the inventory cycle as well as relaxed fiscal and monetary policy, UBS has raised its 2010 growth forecasts for the five biggest economies of Southeast Asia, including the Philippines.

The Philippines’ gross domestic product (GDP) is now seen growing by 5 percent next year from this year’s projected growth of 1.3 percent. The forecast for 2010 was raised from the earlier expectation of 4.6 percent.

But the pace of growth next year is seen likely slower than the 7-percent GDP growth forecast for Singapore, 6 percent for Malaysia, 6 percent for Thailand and 6 percent for Indonesia.

With a relatively buoyant outlook, Donovan said central banks in some emerging markets would likely start raising interest rates by next year, maybe even ahead of the modest monetary tightening by the US Federal Reserve, European Central Bank and Bank of England.

These major Western central banks were projected to shift to a cycle of monetary tightening by the second half of next year.

In the case of the Bangko Sentral ng Pilipinas, UBS is projecting a 50-basis point increase in the key policy rates by the second quarter of 2010.

Asked whether the 2010 presidential elections in the Philippines would dampen investor sentiment on the country, Donovan said: “Risk aversion is going to decline among international investors over the next one to two years so they will be more interested in higher risk assets. So that generally means there will be less concern on political risks.” –Doris Dumlao, Philippine Daily Inquirer