PH economy to grow 6-7% growth this year—FMIC

First Metro Investment Corp. (FMIC), a subsidiary of the Metrobank group, has upgraded its economic growth outlook for the Philippines for 2012 to 6-7 percent, from its earlier forecast of 5-6 percent, given the stronger-than-expected first-quarter output.

The economy grew by 6.4 percent in the first quarter, the second-highest in the region, next to China’s 8.4 percent.

Robust growth is expected to continue the rest of the year, to be fueled by “the surge in infrastructure expenditure, continued unyielding consumption, a strong BPO [business process outsourcing] sector, a recovery in export, lower oil prices, a surging tourism industry and a strong financial market,” FMIC president Roberto Juanchito Dispo said in a briefing on Monday.

In the same briefing, University of Asia and the Pacific economist Victor Abola said growth this year would likely peak in the second quarter at 7 percent before slowing to below 6.5 percent in the third and fourth quarter due to a high base last year.

Domestic consumption will drive most of the growth this year, Abola said, with the Department of Public Works and Highways having already rolled out 80 percent of its projects for this year. “The PPP [public-private partnership program] is just a bonus,” he said.

This year’s growth, he said, would be driven by the industry and services sectors, which were seen to expand by 6-7 percent and 7-8 percent, respectively.

Also, FMIC is slashing its inflation forecast for the year to 3.2 to 3.4 percent, from its earlier projection of 3.5 to 3.7 percent, as crude prices continue to slow down to $100 per barrel from a high of $123/bbl.

Remittances from overseas Filipinos, a key driver of domestic consumption, were seen growing by 5.7 percent this year despite a slight decline in 2011.

Among the risks to growth, Abola said, were external factors such as the eurozone crisis, the possibility of a hard landing in China and oil price increases.

In the domestic front, he said the risks included debt overhang, poor infrastructure, the overvaluation of the peso versus the US dollar and power shortages.

In the meantime, the financial market is expected to remain attractive this year with tremendous liquidity persisting alongside high savings rate and low interest rates.

FMIC senior vice president and head of treasury group Reynaldo Montalbo Jr. said the downward trend in interest rates that started in 2004-2005 would continue this year, although at a slower pace. For instance, he noted that 20-year government securities rates would decline by about 8-10 percent this year from a 27-percent decline in 2011. This is seen bringing the 20-year rate down to 5.6 percent by the end of the year from 6.126 percent on Friday.

Yearend yields on other tenors of government securities were seen as follows: 25 years, 6 percent; 10 years, 5 percent; 5 years, 4.75 percent, and 91 days, 3 percent.