ING hikes PHL growth forecast

ING Bank has significantly upgraded its growth forecast for the Philippines to 7.3 percent this year from its original projection of 6.1 percent.

ING Bank Chief Economist Joey Cuyegkeng said the Philippines would outpace the rate of economic expansion of China and other Asian countries even if its export sector would continue to be a drag.

In the first quarter of the year, the Philippines posted a surprising 7.8-percent gross domestic product (GDP) growth, overtaking China’s 7.7 percent.

For the second quarter, Cuyegkeng said the country’s growth rate would still be about 7.8 percent or higher, again beating the bank’s forecast for China at 7.5 percent for the period.

Cuyegkeng said the bank upgraded its forecast for the Philippines on the back of a solid first-quarter performance and the stronger government spending, especially on projects on infrastructure improvement.

While the chief economist also cited the strong domestic demand as a “main driver of solid growth” in the country, demand from the rest of the world is seen to continue in a downward trend.

He said electronic exports, which comprise about 40 percent of the total exports of the country, could not be banked on as a contributor for the country’s growth as several indicators across Asia point to a weak demand for the said product.

“Exports will continue to be a drag unless we diversify and we become more competitive. But in the meantime there is that strong domestic sector that provides that growth,” Cuyegkeng said.

The ING Bank also revised its initial inflation forecast of 3.7 percent for the year to a range of 3 percent to 3.2 percent.

Cuyegkeng said the lower inflation band is due to “what we are seeing in the actual data.” He also said the investment bank supports the view of the Bangko Sentral ng Pilipinas (BSP) of a benign inflation throughout the year.

“It seems that with agriculture continuing to show good performance, it taps more or less some of those basic commodity prices so I guess we need to take a look at how the robust growth and the money-supply growth stand out in terms of demand,” he added.

The BSP released late Wednesday data showing the country’s money supply grew by 20.3 percent from last year’s to reach about P5.7 trillion as of end-June this year. This was faster than the domestic liquidity recorded in May at 16.4 percent.

According to the statement, the money-supply growth was driven largely by sustained expansion in net domestic assets (NDA), growing credits to the public sector and increase in the balance of the other account due in part to the lower special deposit account (SDA) placements by trust entities.

Cuyegkeng, however, said the retail accounts pullout mandated by the BSP could cause inflationary pressures in the long term.

“At least in the near term we support the central bank’s view of a very modest inflation. We deviate slightly from that, we are looking at continuous uptrend of inflation in 2015,” he said.

“It’s a risk at the moment, so far I think it has a low probability, but it’s a risk that should be monitored because the likely trend of M3 [domestic liquidity] growth is upside and if M3 growth is sustained to about 20 percent over a six-to-12-month period, coupled with a strong domestic demand, price pressures come about and that could possible happen by mid next year of 2015, that is why there is that risk,” Cuyegkeng added.

The chief economist said the most important issue is how to sustain this robust-growth environment to reach the Aquino administration’s target of making it more inclusive.

“The most important thing to know is if we can sustain that kind of growth and, therefore, eventually bring down poverty levels, which is what the government tries to do. And I think the sustainability issue is partly answered by the strong infrastructure spending of the national government. If the PPP [public-private partnership] does get on line, it gathers more momentum for the country in the next 12 to 18 months. That is an added source of growth for the economy. So to me, as long as we can maintain more than 6-percent growth that is good enough,” he said. –Bianca Cuaresma, Businessmirror