Barclays sees perkier economy in ’12

Barclays expects the Philippines to post a faster economic growth rate of 4.2 percent this year as public spending picks up while household consumption remains robust.

In a report on its assessment of the Philippines, Barclays said remittances would likely grow by 8 percent this year to $22 billion, helping push private consumption.

In 2011, the country’s economic growth rate slowed to 3.7 percent.

Remittances support consumption of about 10 percent of Filipino households.

This year, government spending is also seen to increase with focus on developmental initiatives.

But Barclays projected economic growth of 4.2 percent this year is below the government’s target of 5 to 6 percent.

While household and government spending is expected to rise this year, Barclays does not believe these developments are enough to boost economic growth rate to beyond 4.2 percent.

Economists said the performance of the Philippines this year would still be weighed down by unfavorable events abroad, particularly the weakened demand for the country’s exports.

Although the United States—one of the Philippines’ biggest export markets—is beginning to show signs of improvement, the debt crisis now gripping the eurozone, another major export destination, is expected to take its toll on Philippine trade, economists said.

Also, Barclays said the Bangko Sentral ng Pilipinas would likely undertake another 25-basis-point rate cut in the second quarter.

The central bank may decide to follow through with a similar cut in key rates it made in January to further accelerate growth of the economy.

At the moment, the central bank’s overnight borrowing and lending rates stand at 4.25 and 6.25 percent, respectively.

“Our base case remains that the BSP will cut interest rates [by] 25 bp, to 4 percent, in the second quarter to support growth against a backdrop of manageable inflation,” said Barclays in a report written by economist Prakriti Sofat.

Barclays said that with inflation seen to remain within the ceiling set at 3 to 5 percent, the BSP would have enough room to further cut rates.

Low interest rates help boost demand for loans which, in turn, support growth in consumption and investments.

But while it boosts consumption, a rate cut also has a tendency to accelerate inflation.

But monetary officials have said that it would be safe to cut key rates so long as this action would not cause inflation to breach the set ceiling.