UBS sees RP economy to grow at 3.3% in 2012, 4.7% in 2013

UBS Investment Research projects Philippine economic growth at 3.3 percent in 2012 and will further grow to 4.7 percent in 2013.

Paul Donovan, UBS deputy head of global economics, said the 2012 projection is still below the considered good growth level of 3.7 percent and .3 percent is lower than general indications/consensus.

The low growth projection is due to major foreign economies —Eurozone economy, China economy etc. — taken into consideration outside forces despite increase in investment spending in the country, ramped up government spending and fairly soft export in the country.

“The Philippines is in a reasonable level of growth…the positive outlook on re-rating of the Philippines is because there has been recognition in the markets that the Philippines has made progress in credit growth and economic growth…that’s a direction to go to…but predicting credit upgrade is hard. But Phillippines should consider itself a credit-upgrade-worthy country,” he said.

“Most of the world is doing okay…there is ‘reasonable’ growth but they are below good growth of 3.7 percent,” he said.

Donovan said the United States is doing okay and they projected growth at 2.3 percent; Japan’s economy is projected to grow to 2.5 percent, which he noted as “more of a reconstruction story” as it rebounds from last year’s crisis; Asia is projected to grow to 6.3 percent which will be more focused on domestic economy as exports will not be the main story in the region; while Eurozone economy is projected at -0.4 percent.

He noted that to make growth productive within the Philippines, investors should make sure capital is invested appropriately-invested in Philippine resources and use of Filipino expertise and labor, and in infrastructure like transport, communication, schools and education which could help productivity.

However, despite all of these being in the direction of the Philippine economy, projections of higher growth is still far from happening due to Eurozone problems which could gravely affect the local economy.

The first problem he noted is the fiscal tightening in the Eurozone which has been causing problems in terms of economic growth. For example, Spain is projected to have a -2 percent GDP growth due to an “unimaginable” bad number of youth unemployment under age 24 at 49.9 percent, plus the budget deficit of the Spanish government.

UK, meanwhile, has fiscal tightening spread out over five years. “Not much fiscal tightening but it has effects in growth,” he said.

For the US, Donovan said there will be fiscal tightening by year-end but will be limited.

Second problem he cited is monetary policy and credit tightening. In the case of the US, consumer credit has been rising since the second quarter of 2011 as banks have been lending which has been helping in the economic recovery. “US consumer is leading recovery because they can borrow and spend. Money supply is growing quite strongly at 10 percent that’s why FED does not have to do quantitative policy,” he said.

The US recovery is below trend as unemployment problem remains significant, there is political sensitivity and FED will not do more policies or tightening.

Donovan said FED is going needs to be careful with its quantitative policy. The economy of US in nominal terms is 5 percent a year and with 10 percent money supply, there is going to be too much money chasing too few goods. US has become a more cash basis society-use credit more, use cash less. “What is needed is more liquidity,” he said. –Danessa O. Rivera, Daily Tribune