Philippine economy likely grew by 4.1% in ’11, says BPI

The pace of Philippine economic growth likely quickened to 5.5 percent in the fourth quarter of last year due to the last-quarter boost in government spending, bringing full-year expansion to 4.1 percent, said a Bank of the Philippine Islands research.

For 2012, the country’s gross domestic product (GDP) may grow at a faster clip of 5 percent as exports pick up and the government starts spending more, according to a January 16 research written by BPI’s market research department headed by economist Emilio Neri Jr.

“The Philippines is at a critical juncture at this point in time, as the New Year represents a fresh start for the Aquino administration, which arguably belly-flopped in 2011. The favorable December inflation was an unexpected grace, underscoring the country’s economic managers’ chances to flex their monetary and fiscal muscles moving forward, especially after missing rare windows of opportunity last year,” the BPI research said.

On the monetary side, the research said the Bangko Sentral ng Pilipinas would likely slash its key interest rates by 50 basis points at the most for the full year, suggesting another quarter-percentage reduction after last week’s easing by the same magnitude.

After the fiscal contraction for most of 2011, the study said the administration had finally jumpstarted its infrastructure development in the fourth quarter of last year, allowing the budget deficit to hit 1.9 percent of GDP from the meager nine-month ratio of 0.8 percent.

This boost to the construction sector, along with continued expansion in the business process outsourcing and real estate industries, could lift full-year 2011 growth to 4.1 percent, it explained.

The Philippine economy grew by only 3.6 percent in the first three quarters of last year, way below the 8.2 percent growth in the same period in 2010 which, however, was an extraordinary period being a Presidential election year.

The government’s fiscal and monetary stimulus, the research said, would allow GDP to grow faster this year despite uncertainties in the global economy.

“Despite perceived tensions in the Middle East and jitters in the eurozone, demand for OF [overseas Filipino] workers may hold steady, keeping OF remittance growth at 7 percent for 2012 and domestic spending power healthy. Still, as the risk of a drop in exports or private investment spending remains substantial, the BSP would be prepared to cut the policy rate by at most 50 basis points,” the research said.

The BPI research said that benign inflation, which may average below the 4.8 percent pace of 2011, could provide additional support for any necessary monetary easing.

“We continue to see local interest rates staying on a downward trajectory, with a flattening bias as short-term rates may exhibit rising tendencies in light of negative external developments, while sound domestic fundamentals fuel investor interest in the long end,” it said.

Meanwhile, the research said the Philippine peso would probably be range-bound this 2012, as currency market movements would continue to be dictated by offshore developments, particularly in Europe.

“However, favorable domestic fundamentals are expected to provide a buffer against significant downturns in case of external shocks, and may even allow the Philippine peso to relatively outperform other currencies in case of risk aversion,” it explained.

On the other hand, the research said Philippine sovereign issues may continue to underperform in the near term, as looming eurozone fiscal problems may weigh on investor sentiments.

“However, long-term prospects may improve if the Asian region’s economies continue to exhibit relative resilience, and the Philippines may still get a credit rating upgrade this year,” it said.

Even as the US economic recovery story seems to be gathering steam and emerging Asia has some momentum going for it, the research said the big gorilla in the room would be the massive refinancing needs of developed economies, which may reportedly reach $7.6 trillion in 2012, with Europe already juggling $200 billion worth of debt this first quarter of 2012.