UBS maintains RP growth forecast at 1.8%

The Union Bank of Switzerland (UBS) is keeping its bleak economic growth projection for the Philippines this year despite what it termed as a surprising gross domestic product (GDP) growth last year.

UBS expects the Philippine economy to grow by just 1.8 percent due to the impact of the global financial turmoil.

The investment bank’s GDP growth projection is slower than the government’s official GDP growth projection of 3.7 percent to 4.7 percent for the year, revised downward by the interagency Development Budget Coordination Committee (DBCC) from the official forecast of 6.1 percent to 7.1 percent.

“Although well below the trend of the last few years, this is a favorable outcome in the face of a likely outright contraction in the global economy,” UBS said.

The National Economic and Development Authority (NEDA) has reported that the economy grew by 4.6 percent in 2008 or within the government’s projection of 4.1 percent to 4.8 percent but significantly slower than the 7.2 percent recorded in 2007. In the fourth quarter of the year, economy grew 4.5 percent.

UBS, in its latest report on the Philippines, said the 2008 economic figures “surprised positively.”

Despite this, UBS said it is maintaining its 1.8-percent GDP growth projection for the Philippines for 2009 as it still needs to see more evidence that the economy is indeed resilient to external shocks such as the ongoing financial turmoil around the globe.

UBS said that the Philippines is very much exposed to global trade, financial market and sentiment shifts given its reliance on exports and exported labor.

It also expects dollar remittances from Filipinos abroad to slow down.

“Layoffs are becoming widespread regionally and we expect a decline in dollar remittances during 2009,” UBS said.

With the expected slower economic growth for the Philippines, UBS expects the Bangko Sentral ng Pilipinas to continue easing monetary policy this year.

“We look for policy rates to fall to at least 4.5 percent and for the fiscal deficit to surpass 1.5 percent of GDP in 2009,” UBS said.

Last Thursday, monetary authorities cut the overnight borrowing rate by 50 basis points to five percent.–Iris C. Gonzales, Philippine Star