After the Philippines posted a better-than-projected April-June growth, the Union Bank of Switzerland (UBS) and the Development Bank of Singapore (DBS) have revised their full-year growth forecast for the country.
UBS GROWTH PROJECTIONS
The Philippines grew 5.9% in the second quarter, beating most analysts’ forecasts of 5.5% and UBS’ own of 3.7%.
UBS’ 5.8% full-year growth forecast for the year is within the government’s target range of 5% to 6% for 2012.
Official target growth range in 2013 is higher at 6% to 7%, but UBS said in its latest report called “Philippines: Mixed Messages from Q2 GDP,” it is keeping its 4.7% growth forecast for 2013.
It said that while the Philippines has strong legs for growth, manufacturing and trade indicators show slowing momentum.
UBS said that Philippines may post a growth in the third quarter that would be slower — again — than the strong 6.4% in the first.
“Neither Philippine nor global lead indicators suggest a strong bounce-back in the third quarter of the year,” UBS wrote.
On the monetary side, UBS said the Bangko Sentral ng Pilipinas is likely to use macro prudential measures rather than policy rate adjustments in the immediate future.
“The tighter limits on bank exposure to real estate announced on August 23 suggests no further policy rate cuts, while the concern over growth and capital inflows suggests no hikes,” UBS said.
It projects the peso to hit an average of P42 to the dollar by end-2012.
DBS GROWTH PROJECTIONS
DBS expects the Philippine economy to grow by 5.6% this year from a previous outlook of 5.3% “on account of strong H1 (first half) numbers.” The country saw its GDP accelerate to an annual 6.1% in the six months to June from 4.2% in the same period last year.
DBS’s revision of its outlook for the full-year GDP of the Philippines is already the second time for the year.
Last June, it hiked its 2012 GDP forecast for the Philippines to 5.3% from an original 4.2% it announced in January, citing the strong 6.4% economic expansion in the first three months of the year.
However,DBS downgraded its outlook for the Philippine economy next year to 5% growth, from an original forecast of 5.2% citing a “weaker global environment.” “Going forward, the country is well-positioned to handle a slowdown in the global economy, with ample room for further monetary and fiscal stimulus if needed,” DBS said.
But the bank said that monetary authorities are expected to keep policy rates steady when it reconvenes on Thursday to assess current settings.
“After the bump in inflation to 3.8% YoY (year on year) in August, a rate cut does not appear likely as BSP (Bangko Sentral ng Pilipinas) may want to anchor inflation expectations first,” DBS said.
However, the bank did pencil in a possible 25-basis-point reduction in policy rates after the September rate-setting meeting.
“In any case, export deterioration is likely to prompt more action by the end of this year and we expect the overnight policy rate to end the year at 3.5%, down from 3.75% currently,” DBS said.
Overnight borrowing and lending rates currently stand at 3.75% and 5.75%, respectively, after the policy-making Monetary Board implemented its third rate cut for the year on July 26.
After the September monetary policy meeting, the Monetary Board will revisit settings next on Oct. 25 and Dec. 13.
Central Bank Governor Amando M. Tetangco last week said key considerations for this week’s policy meeting will be inflation outlook, domestic growth, monetary policy stance of advanced economies and global economic outlook.
BSP Deputy Governor Diwa C. Guinigundo over the weekend said inflation forecasts for this year and the next may be raised after an uptick in the rise in consumer prices in August.
Revisions may be announced after the monetary policy meeting.
Inflation accelerated to a seven-month high of 3.8% in August from 3.2% in July and 2.8% in June.
The central bank has forecast inflation to average 3.1% this year and 3.2% in the next, both at the low-end of the 3-5% target ranges for both years.
DBS, for its part, has already raised its 2012 inflation outlook to 3.3% from a previous forecast of 3.1%.
For next year, the bank has also set it expectations for inflation higher at 3.9% from a previous projection of 3.7%.