Economy seen growing faster than expected in ’12

MANILA, Philippines—The Philippine economy may grow faster than originally expected by analysts this year as strong investor confidence, as reflected by upbeat stock market trading, can translate to greater investment spending, US-based think tank Global Source said.

In a report titled “Animal Spirits?” dated April 3, Global Source said there seemed to be reason to hope that the favorable momentum would be sustained.

“For the moment, we keep our 4.5-percent gross domestic product (GDP) growth forecast for this year, which is based on the expectation that remittances and business process outsourcing (BPO) activity would continue to insulate the economy against still slow exports. But this forecast could most certainly have an upside given the observed shift in sentiment here and abroad,” according to the report written by Filipino economists Romeo Bernardo and Margarita Gonzales.

“Confidence could be further bolstered with greater clarity on the government’s ability to deliver in terms of public spending and decisiveness of leaders in pushing for tax-related legislation, particularly the sin tax reform bill,” the report said, noting that this legislation could be the key to finally bringing the country to investment grade status and should help generate new investments.

Alongside the bullish trading in the stock market, the report said prospects for domestic growth—or at least the latest perception of it—had also suddenly brightened. It noted that expectations for public spending, especially on infrastructure, were now more buoyant owing to the government’s much faster speed of disbursement at the close of 2011 (43 percent annually in December).

The report said additional boost was seen coming from the public-private partnership program, as the government had unveiled 17 projects worth about P196.8 billion (or about 2 percent of GDP) for rollout this year.

“Hopes of an export recovery and continued remittance strength have similarly risen in view of the vastly improved outlook for the global economy,” the report said.

In the overseas market, the report said the US appeared to be on the mend with consumer spending, while its unemployment ratio was going down. At the same time, it noted that the European Central Bank’s generous provision of liquidity to European banks and restructuring of Greek debt had saved the eurozone from a financial and economic cliff.

On the Philippines, Global Source said there was optimism for foreign direct investments, which had been stagnant for some time now, because of the hint of rising confidence in the economy. It noted reports that investment pledges made last year were at their highest since 1996. “This has been attributed to improved governance by the new administration, which launched a strong anti-corruption drive that has led to better international transparency and competitiveness ratings,” the report said.

Taking into account other favorable developments in the economy—such as low expected inflation and good fiscal performance—fueling expectations of another credit upgrade, Global Source said some analysts had started revising upward their GDP growth forecasts.

“But listening to the more bearish, though quite rare nowadays, one gains a lot of perspective on why there is not that much reason to celebrate. For one thing, the recent surge of foreign capital into the stock market may have simply been due to a one-time rebalancing of global funds toward Asia and away from Europe and hence difficult to replicate,” the report said.

Another risk cited is the PPP program. After the successful bidding of a road project last December, not a single project of the 17 scheduled for the year has so far been launched, the report said.