ING lowers growth forecast for Philippines

Dutch financial giant ING has tempered its domestic growth outlook on the Philippines this year following the weaker-than-expected expansion in the second quarter.

ING expects Philippine gross domestic product (GDP) to expand at a slower pace of 4 percent for the full year compared with its original forecast of 5.2 percent, ING economist Joey Cuyegkeng said in an interview with the Inquirer.

Based on the latest outlook, GDP will likely grow 3.7 percent this third quarter and 4.1 percent in the fourth quarter. With a second-quarter GDP growth of 3.4 percent and a revised first-quarter GDP expansion of 4.6 percent, the country’s first-semester GDP growth was at 4 percent.

Since demand pressures would likewise be weaker in a slower economic growth scenario, ING has reduced its average inflation forecast this year to 4.4 percent from 4.7 percent. “Monetary policy will thus be steady for the rest of the year. The only issue now is liquidity,” Cuyegkeng said.

The inflation-targeting Bangko Sentral ng Pilipinas has so far raised its overnight borrowing rate by 50 basis points to 4.5 percent and its reserve requirement ratio by 2 percentage points to 21 percent this year.

The economist sees the domestic economy performing better in 2012. GDP growth for next year was projected at 4.7 percent although this was slower than ING’s previous growth outlook of 5.2 percent.

On ING’s outlook for this year, the assumption was that there would be “moderate” spending on public infrastructure, Cuyegkeng said.

In the first semester, a contraction in state spending weighed down on construction. But starting July, Cuyegkeng noted that the government has started to step up spending, which should help the economy in the second semester.

The economist also said agriculture would likely continue to contribute to growth although output would be more moderate compared with the first half.

The Aquino administration’s target for this year is an ambitious economic growth of 7-8 percent, which means the economy needs to grow at least 10 percent in the second semester.