Nomura sees Philippine economy growing by 4.6% this year

MANILA, Philippines—The Philippines is seen to grow at a faster rate of 4.6 percent this year on the back of historic low interest rates that are seen to complement the push for higher investments in public infrastructure.

This was according to Japanese financial services conglomerate Nomura, which said in one of its latest commentaries that it was maintaining its view that the Philippines would grow faster than most projections, citing the likely significant impact of the anticipated rise in private-sector investments in public infrastructure and government spending.

The economic growth forecast of Nomura for the Philippines is higher than most forecasts, which settle within the 3- to 4.5-percent range, by analysts and economists from the private sector. It also indicates an acceleration from last year’s actual growth of only 3. 7 percent.

“We maintain that the economy will grow by an above-consensus 4.6 percent in 2012 as investment and government spending support growth,” the Japan-based multinational firm said.

The government said investments were likely to spike this year as the Public-Private Partnership (PPP) program materializes. Under the program, launched in late 2010, private firms are invited to invest in public infrastructure projects.

Budget officials of the government have also vowed to increase public spending to help spur growth.

Nomura’s forecast is still below the government’s actual growth target of between 5 and 6 percent for this year.

Last Thursday, the Bangko Sentral ng Pilipinas cut its key policy rates by another 25 basis points, citing the need to counter potentially adverse effects of unfavorable developments in the global economy on the Philippines. The move followed the 25-basis-point cut done in January.

The latest rate cut brought the central bank’s overnight borrowing and lending rates to historic lows of 4 and 6 percent, respectively.

Policymakers expected the cut in the policy rates, which influence commercial interest rates, to boost demand for loans and, in the process, spur consumption and investments.

Nomura and other investment banks expect the record-low interest rates to help speed up growth of the Philippines, which last year saw its gross domestic production expand by only 3.7 percent following a three-decade-high growth of 7.6 percent in 2010.

Nomura said the BSP was unlikely to make any further cuts in the policy rates given inflationary threats resulting from rising global oil prices.

Further rate cuts may spell inflation-related trouble in the coming months, especially if the latest spike in global oil prices becomes a trend. Interest rate cuts, which help boost loans and purchases, have the tendency to accelerate inflation.

The BSP said Thursday that the latest rate cut was still not expected to cause inflation to breach the official target for the year of 3 to 5 percent, but Nomura said a further rate reduction might already pose significant inflation threats.

“The Philippines economy is one of the most vulnerable to increases in global oil prices; the pass-through of international oil prices into domestic inflation is very high as there are no fuel subsidies in place,” Nomura said.

The Philippines imports nearly all its oil requirements.