Jonathan Anderson, managing director for investment research and head of Asia Pacific economics for the Swiss financial giant UBS, said the domestic economy, while showing signs of improvement, remains highly vulnerable to external influences such as high oil prices, high interest rates, foreign currency movements, and the performance of other regional economies.
At the same time, Anderson said the country could likewise be prone to pressures on the political front, with the winner in the recent presidential polls needing to implement the much-needed economic reforms, especially on public sector expenditures and revenue collections.
"He or she must initiate fiscal consolidation, reduce the debt burden, induce economic growth, improve governance and transparency in both public and private sector, and create a more conducive foreign direct investment climate," Anderson said in a press briefing yesterday.
The Philippine economy is forecast to grow by five percent this year and contract to 3.5 percent in 2004. In contrast, the average regional growth rate in Asia, excluding Japan, is pegged at six percent.
Even Indonesia, which is considered the other laggard in the region, would improve its growth performance from four percent last year to an estimated 4.4 percent this year and 4.5 percent in 2005.
The UBS executive also expressed alarm that the expected increase in interest rates by the United States Federal Reserve would impact heavily on the country’s growth as local interest rates are expected to follow suit.
The Fed will likely increase rates by between 25 to 50 basis points every quarter, expected to peak to 3.75 percent by Dec. 2005.
Thus, the Philippines would move its 91-day Treasury bills from an estimated yield of 7.75 percent by end year to 9.25 percent by 2005. The 10-year bond rate , meanwhile, is seen to hover at the 13 percent level this year to 14 percent by end-2005.
However, Anderson estimated the peso to remain at the high end of P55 to the US dollar this year, before weakening further to the P56:$1 level.
UBS is a global financial firm dealing in wealth management, investment banking, retail and commercial banking, and asset management. It manages assets worth up to 2.2 trillion Swiss francs.