UBS revises RP growth forecast to 1.3% in 2009

MANILA, Philippines – The Union Bank of Switzerland (UBS) has revised upward its 2009 economic growth forecast for the Philippines on the back of higher dollar remittances from overseas Filipino workers (OFWs) and a widening fiscal deficit which is expected to fuel economic activities in the remaining part of 2009.

The UBS has revised its gross domestic product (GDP) growth projection to 1.3 percent from 0.8 percent previously. The revised projection is within the government’s economic growth projection for 2009 of 0.8 percent to 1.8 percent. For 2010, the UBS retained its economic growth forecast of 4.6 percent.

In the second quarter of the year, the economy grew by 1.5 percent year-on-year, compared to the 0.4-percent growth registered in the first quarter.

Remittances from OFWs remained robust, climbing by 9.3 percent to $1.5 billion in July from $1.4 billion in the same period last year.

UBS said that while typhoon Ondoy has disrupted economic growth, the rebuilding efforts initiated by the government and the private sector would translate to economic activities in the remaining quarter of the year.

“While economic activity may be temporarily impacted by the tragic floods seen on the weekend of Sept. 26, the rebuilding effort will likely help the trend recovery in activity to continue in coming quarters. We retain our forecast for 4.6 percent growth in 2010, but edge up our 2009 real GDP forecast to 1.3 percent — less than we would have done in the absence of the typhoon Ondoy,” UBS said.

The Switzerland-based bank said that because of the need to pump-prime the economy after typhoon Ondoy, the government would likely incur a budget deficit of P300 billion this year or 3.9 percent of GDP. This is higher than the government’s revised deficit ceiling of P250 billion or 3.2 percent of GDP.

“So long as the National Government’s deficit spending does not drive up real interest rates too much relative to real GDP growth by competing with the private sector for the pool of savings, a modest primary deficit should be consistent with stable debt to GDP. And that in turn would be consistent with an overall deficit of four to five percent of GDP,” UBS said. –Iris C. Gonzales (The Philippine Star)