Growth outlooks raised

ANALYSTS have moved to revise their growth outlooks for the Philippines following surprisingly strong third-quarter results.

Strong growth seen boosting gov’t revenuesQ3 surprise prompts growth forecast revisionGrowth tops forecastsMedium-term growth seen below targetCiti sets 2013 GDP forecast of 5.3%

In separate reports, the research units of Barclays Capital, Citigroup, Inc., Metropolitan Bank & Trust Co. (Metrobank) and Nomura Singapore Ltd., plus consultancy GlobalSource Partners, yesterday all said that 2012 gross domestic product (GDP) growth could exceed the government’s full-year target of 5-6%.

The government on Wednesday reported that consumer spending, construction activities and external trade had led to third quarter GDP growth of 7.1%, beating expectations.

The result brought year-to-date GDP growth to 6.5%. Economic managers subsequently revised their own outlook to 6-7% but said the 5-6% range remained the official target.

Barclays said it had revised its full-year growth forecast to 6.2% from 5.5%, noting that public consumption will likely remain strong this quarter and going into 2013.

“We are also revising up our 2013 growth forecast by 40 bps to 5.6%, given a supportive policy environment and continued momentum in consumption on the back of mid-term elections in May,” it added.

Citi Research upgraded its 2012 projection to 6.3% from 5% and added that the Philippines would likely register gains of 6% or more in the next two years.

“We expect domestic demand driven by real investment components — construction and capex (capital expenditures) — to support GDP growth of 6% and more in the short- to medium-term,” it said.

Should investments continue their current growth trend, the investment share of GDP could likely edge up to 21.3% by 2014, Citi Research added.

“This bodes well for the shift to investment-driven growth as the investment share of GDP may return to the 22-23% range prior to the 1997-1998 AFC (Asian financial crisis),” it said.

Both Metrobank Research and Nomura, meanwhile, had identical 2012 forecasts of 6.6%, up from their previous outlooks of 5.5% and 6.0%, respectively.

“The Philippine economy seems to be on the road to a higher growth trajectory, surprising markets with remarkable expansions in the first three quarters of the year. The economy is thus seen to cap the year way stronger than what was previously expected,” Metrobank Research said.

“Consumer spending will still be supported by sustained inflow of remittances and still well-anchored inflation expectations.”

Nomura said its 6.6% forecast “implies Q4 growth of close to 7%, consistent with our view that the Chinese economy will show a cyclical rebound in Q4, supporting export growth even as domestic demand remains supported by higher household spending and government expenditures.”

On the supply side, the services sector will be the main growth driver given the “rosy outlook” the real estate and tourism sub-sectors, Metrobank Research said.

“Public construction is expected to sustain its growth in the second half of the year on accelerated government spending ahead of the congressional elections next year,” it said, adding: “The agricultural sector is also seen to sustain its rebound given that no adverse weather condition was experienced…”

Metrobank Research also revised its 2013 growth outlook to 6%, up from 5.2% previously, while Nomura revised its 2013 forecast to 6.4% from 6.0%.

The increase, said Nomura, is based on a “view that government efforts to increase infrastructure spending will continue (more so as it is an election year), along with further progress in the Public-Private Partnership (PPP) scheme which should support private sector demand further.”

“In other words, growth is now increasingly investment-led, putting the economy on the path towards a higher growth potential.”

GlobalSource Partners, while not issuing a specific forecast, said the growth looked “set to exceed the upper end of government’s 5-6% target.”

“The economy’s stronger growth, which pushed domestic output further above trend, will likely be an important consideration as monetary authorities weigh inflation risks and decide on the policy rate in its next meeting,” it added.

The Bangko Sentral ng Pilipinas’ (BSP) Monetary Board will conduct its last policy-setting meeting for the year on Dec. 13.

The central bank’s overnight borrowing and lending rates are currently at record lows of 3.5% and 5.5%, respectively, following a 25-basis-point cut last October.

Barclays, Citi Research, and Nomura said the BSP was likely to keep interest rates unchanged on Dec. 13, with Citi saying that the strong third-quarter GDP growth “doesn’t argue for rate easing.”

Barclays said, “Although inflation remains manageable for now, robust growth suggests potential inflation risks ahead. We now believe that the central bank will keep rates unchanged at 3.5% in the December policy meeting and into 2013.”

“However, the fiscal cliff uncertainty still looms as does the possibility of renewed concerns on Europe. If the global growth outlook were to deteriorate then the BSP might be inclined to cut rates further — but the central bank will keep a keen eye on inflation developments,” it added.

Nomura said the central bank would likely hold rates unchanged until the third quarter of 2013. It also said the central bank could consider changing its policy stance as domestic demand was likely to drive inflation upwards.

“With domestic demand conditions fairly strong and GDP growth sustained above potential even into 2013, headline inflation should rise to the upper half of the 3-5% target band, not at the lower end which is what BSP currently forecasts. Consistent with our GDP growth upgrades, we have revised up our 2013 inflation forecast to 4.6% from 4.4%,” it said.

“We therefore expect a change in BSP’s rhetoric, signaling a shift in its bias towards containing overheating risks,” Nomura said.

Barclays and Nomura also weighed in on the peso’s performance against the US dollar.

“We believe jawboning will continue and the risk of the BSP undertaking additional macro-prudential measures to contain speculative inflows has increased,” Barclays said.

Nomura said the peso could strengthen to P39.2 per dollar by yearend and to P39.8 by mid-2013.

“We have argued that the BSP’s stance … has been to lean against appreciation (rather than to stem it completely) as recent PHP strength has been primarily led by structural flows from remittances and the business process outsourcing sector,” it said.

“We now expect BSP to be even more tolerant of PHP strength as a complementary tool to manage inflation, given our view of a potential shift in monetary policy stance early next year due to overheating risk,” it said.

The peso closed unchanged at P40.90:$1 yesterday. — Bettina Faye V. Roc, Businessworld