Philippines growth expected to reach 5% in 2012

Moody’s Investors Service expects the Philippines to grow by a faster rate of 5 percent next year, aided partly by sustained rise in remittances and growth in investments in the business process outsourcing (BPO) industry.

The credit-rating firm’s growth forecast for the Philippines for next year is higher than its projection of 4.5 percent for this year.

“We expect remittances from overseas workers and exports of services, such as those by back office business processing industry, to maintain their solid levels of growth,” Moody’s said in a report on its outlook on the Philippines.

Remittances make up about 10 percent of the country’s economy, while investments in BPOs account for about 30 percent of the country’s total export earnings (from both goods and services).

Moody’s said remittances and BPO investments would not only help drive consumption but it would also boost the country’s total reserves of foreign exchange, or the gross international reserves (GIR), which currently stands at a record high of about $76 billion.

Monetary officials said the country’s rising GIR should help convince ratings firms, such as Moody’s, to upgrade the country’s credit standing, which is rated one to two notches below investment grade.

The Philippines, whose bonds have been rated speculative for a long time, hopes to secure an investment-grade rating next year or by 2013.

“Overall, foreign income inflows will drive domestic demand and maintain the Philippines’ strong external balance in the coming 12-18 months,” Moody’s said.

A 5-percent growth for next year, nonetheless, will still be lower than what the government and economists believe is ideal for the Philippines.

The government aims to boost the country’s economic growth rate to at least 7 percent every year over the medium term. This is because, according to economists, the country needs to reduce poverty incidence, which stands at 26 percent, based on 2009 data.

In the first three quarters of this year, the economy grew by a mere 3.6 percent.

This development prompted government officials to announce that the official target of between 4.5 and 5.5 percent could no longer be attained.

The weak performance of the economy in the first three quarters of 2011 was brought on by a decline in public spending and a drop in global demand for the country’s exports.

The crisis in the euro zone and the sluggish US economy, some of Philippines’ biggest export markets, greatly contributed to the drop in exports.