RP growth seen to beat most expectations

MANILA, Philippines—Goldman Sachs is keeping a bullish outlook on the Philippines, expecting remittances and the overall economy to grow faster than most expectations.

In its latest commentary on the Philippines, Goldman Sachs said it would retain its 7.4 percent growth expectations of the domestic economy for this year. Its projection is much better than the Philippine government’s official target of 5 to 6 percent.

Growth will still be supported by remittances, which the investment bank expects to rise by 10 percent this year—higher than the central bank’s own projection of between 6 and 8 percent.

Last year, remittances reached $17.4 billion.

Foreign investments in the country’s business process outsourcing industry is also boosting growth, the bank added.

“We expect [recovery] to get support from … stable remittances and growing IT services exports,” Goldman Sachs said.

The bank added that dollar inflows into the country would support consumption, balance of payments and the peso, on top of gross domestic product (GDP).

According to an earlier Bangko Sentral ng Pilipinas report, remittances hit $10.68 billion in the first eight months of the year—up 7.1 percent from $9.97 billion during the same period a year ago. The BSP said the rise in remittances was due to sustained growth in demand for Filipino workers abroad.

Also, the recovery of the global economy from last year’s crippling financial crisis supported the rise in remittances. The recovery allowed firms to rehire workers who were previously laid off or take on new ones.

In the first semester, the economy, measured in terms of GDP, grew by 7.9 percent—the fastest rate of rise in over 30 years. Economists said growth in the first half indicated firm recovery from last year’s downturn.

In 2009, the economy grew by a mere 1.1 percent, dampened by a contraction of exports amid weakened demand for goods and services, apart from lackluster investments and consumption.

Goldman Sachs also cited the increase in dollar inflows, which had propped up the peso. It believes that this trend will continue through end-2011.

By the end of 2010, the peso is expected to settle at 43:$1. It may strengthen further to 41 against the greenback over the next 12 months. –Michelle Remo, Philippine Daily Inquirer