The Philippines economy may grow by 4.5 percent this year, faster than the earlier forecast of 3.3 percent, considering an improvement in the investment inflow to the country, according to UBS Securities.
However, UBS economist Edward Teather said in a research note that the improvement had not reached a point that good times ahead were ensured.
Teather said “favorable developments and clearer evidence of strengthening investment” were needed to be seen lest the apparent improvement could turn into disappointment.
“Manila has been the place to be in early 2012,” he said. “The Philippine equity market has outperformed its peers with dollar returns helped by peso gains.”
Teather said the Philippine financial markets had recovered since weakening in the second half of last year along with other markets in Southeast Asia.
“Reflecting an earlier recovery in activity data than we expected, we revise up our real GDP forecast to 4.5 percent for 2012 from 3.3 percent,” he said. “The improved growth data supports our call that the Bangko Sentral ng Pilipinas was done easing policy rates.”
In its most recent policy meeting, the BSP kept its overnight borrowing rate at 4 percent and overnight lending rate at 6 percent, mainly due to an “assessment of a favorable inflation environment.”
“Relative to Asean (Association of Southeast Asian Nations), the recent performance of the Philippine equity market seems linked to prospects for an upswing in investment,” Teather said.
“We can see the potential for a further leg up in investment activity as GDP growth recovers from a slower than average pace in 2011—based on easy credit conditions and available savings,” he added.
Even then, the economist said the performance of the Philippine financial market indicated the need for clearer evidence of strengthening investment.
“We are hopeful, but there is a risk of near term disappointment in performance relative to the rest of Asean if this is not forthcoming,” Teather said.
“Limiting downside risks for investors, recovering growth and easy policy settings are usually good news for asset prices—but the Philippines is not the only Asian market with those attributes,” he said.