Economy seen expanding 5.7% this year

MANILA, Philippines – The economy could expand by 5.7 percent this year as steady flow of remittances buoys consumption growth and investment, an investment bank said yesterday.

“The recent acceleration of remittances points to robust (third quarter) private consumption growth. At the same time, fiscal spending is also supporting public spending and investment,” HSBC economist Trinh Nguyen said in a research note.

“Growth, therefore, is expected to reach the government’s five to six-percent target,” she added.

Economic growth hit 6.1 percent as of the first semester. Last year, growth was a dismal 3.9 percent.

Data released on Monday showed cash remittances growing 7.6 percent in August to $1.797 billion, bringing the year-to-date tally to $13.733 billion, up 5.5 percent. Nguyen said “the acceleration of remittances was much stronger than expected.”

This, in turn, highlighted the Philippines’ service-driven economy, she explained, adding that this could cushion the impact of the weakening export sector, which unexpectedly dropped by nine percent in August.

While healthy demand boosts growth, Nguyen also warned of inflationary pressures which are “tilted upside,” despite saying that prices are generally expected to remain stable throughout the year.

Inflation slowed to 3.6 percent in September from 3.8 percent in August, keeping the year-to-date consumer price uptick at 3.2 percent. With the figure falling at the low end of the official three to five-percent target for the year, the Bangko Sentral ng Pilipinas (BSP) slashed key rates by an aggregate of 75 basis points to encourage bank lending.

“We expect prices to stay stable in the next couple (of months), but inflation will begin picking up significantly in (first quarter of 2013) due to an unfavorable base effect and an anticipated recovery from China,” Nguyen said.

“As such, we expect the BSP to continue to support domestic spending by keeping rates at a historic low while remaining vigilant on inflation,” she added.

BSP will hold its second to the last policy meeting for the year on Oct. 25 and the market expects it to trim rates anew— the fourth for the year if it will do so— as it looks at boosting exports while inflation expectations remain well anchored. –Prinz P. Magtulis (The Philippine Star)