Goldman Sachs ups RP growth forecast to 7.4%

US-based investment bank Goldman Sachs revised its 2010 Philippine economic outlook saying the economy will grow 7.4 percent from 4.2 percent after the stronger-than-expected rebound in the first six months.

In its latest Asia Economics Data Flash, Goldman Sachs said it expects the Philippine economy as measured by the gross domestic product to ease in the second half of the year as the global economic rebound softens in the second half.

“For full-year 2010, we remain confident in our GDP growth forecast of 7.4 percent, versus the consensus expectation of 6.3 percent. On a sequential basis, we expect the growth momentum to ease to 2.5 percent quarter-on-quarter for the third quarter of 2010 and fourth quarter, from 5.3 percent in the second quarter, as the global economic momentum softens in second half of 2010,” Goldman Sachs said.

The Goldman Sachs forecast was more optimistic than the revised GDP growth target of 5 percent to 6 percent penned by Philippine economic managers in the Cabinet-level Development Budget Coordination Committee (DBCC).

National Statistical Coordination Board data showed that the country’s domestic output expanded by 7.9 percent in the first half of the year from 1.2 percent year earlier. The country’s GDP grew by 7.9 percent in the second quarter from the 7.8 percent in the first three months of the year.

“The second quarter 2010 GDP print confirms that the recovery process is firmly on track, and we expect it to continue to get support from the two engines of flows — stable remittances and growing information technology service exports,” Goldman Sachs said.

Philippine merchandise exports rose by 37.3 percent to $32.97 billion in January-August from $24.01 billion in the same period last year. Merchandise exports will likely grow by 15 percent this year, the DBCC said.

“We saw strength in the exports of the two largest product groups: electronics and apparel and clothing. In terms of exports destination, exports to Singapore and China both registered the strongest growth, which we believe are related to electronic exports,” Goldman Sachs noted.

Strong OFW remittance

The investment bank sees remittances of overseas Filipino workers (OFWs) growing by 10 percent this year from $17.35 billion in 2009.

The BSP has upgraded its remittance growth forecast to 8 percent from 6 percent on strong demand for professional and skilled Filipino workers abroad.

Money sent home by overseas Filipinos increased by 7.1 percent to $10.679 billion in the first seven months of the year from $9.973 billion in the same 2009 period.

“We expect this to continue to provide steady support to private consumption, the balance of payments, GDP growth and the Philippine peso,” Goldman Sachs said.

On the other hand, the country’s balance of payments (BOP) surplus widened by 25.3 percent to $3.478 billion in the first eight months from $2.775 billion a year earlier on money transfers and non-remittance foreign exchange inflows.

The BSP believes that the revised payments surplus target of $3.7 billion would easily be breached this year.

For 2011, Goldman Sachs said that “our GDP growth forecast stands at 5 percent year-on-year” as worldwide economic growth decelerates.

The investment bank said that the peso will strengthen to 41:$1 over the next 12 months. — VS, GMANews.TV