Rise in domestic demand to fuel GDP growth

Domestic demand is seen to push the growth of gross domestic product in 2012 as progress in public-private partnership (PPP) projects is expected to show impact on investments by the second semester.

In a research note, the DBS Group said domestic demand would get a boost from higher government spending, resilient private consumption and the expected increase in investments as contracts for big-ticket PPP projects get auctioned off.

“Coupled with an accommodative monetary policy, domestic demand is projected to contribute 5.5 percentage points to headline growth this year,” the Singapore-based group said.

These, along with other positive contributors to growth and counterbalanced by negative contributors, would result in a GDP expansion of 4.2 percent in 2012, as projected by DBS earlier this year.

The financial services provider, however, said a poor export performance might drag the country’s economic growth. Exports, it said, were expected to shave off 1.4 percentage points from this year’s GDP growth.

For the first semester of 2012, DBS said government spending should kick up “by several notches” as Malacañang continues to frontload disbursements.

“In most other cases, [a] surge in spending will be viewed negatively,” DBS said. “However, in the case of the Philippines, this is a welcome relief as it implies that the budget disbursement bottleneck has probably been cleared.”

DBS added that with the budget deficit for 2012 set at 2.6 percent of GDP as opposed to the 2 percent recorded in 2011, expansionary fiscal policy [increase in government spending] is set to persist in the coming quarters before government spending gets reined in for 2013.

Earlier, DBS said it expected the Philippine GDP to grow by 4.2 percent this year on the assumption that the global external demand for the country’s exports will start to stabilize by mid-2012 and government spending will be accelerated.

It added that while the economy continued to be buffeted by external headwinds, the impact should not be as bad as the global financial crisis in 2008/2009.

“An expected acceleration in government spending in 2012 is a key reason why we see growth higher this year as compared to 2011,” it said. “Moreover, the much-touted (PPP) projects should also play a part in boosting government spending this year.”