UOB upgrades 2007 growth forecast for RP

United Overseas Bank (UOB) has upgraded its 2007 economic growth forecast for the Philippines to 5.6 percent from the original target of 4.9 percent.

“We believe the Philippine economy will still enjoy good year in 2007 with GDP expanding 5.6 percent from previous forecast of 4.9 percent on domestic drivers and exports growth holding up,” UOB said.

Nevertheless, UOB said the Philippine economy is unlikely to sustain its strong growth in the first quarter of the year due to the expected decline in government spending.

Strong government spending on investments and infrastructure usually drives the economy upward as it creates jobs and helps boosts domestic consumption.

“So while the country has enjoyed an impressive first quarter, we do not expect growth to be sustained above the first quarter rates for the rest of the year chiefly because government consumption would retreat while exports are likely to moderate on slower demand from global markets,” UOB said in its report.

The economy grew 6.9 percent in the first half of the year.

UOB said that investments component remained the economy’s achilles’ heel, expanding just 2.7 percent year on year or slightly better than the 2.2 percent registered in the fourth quarter but it is expected to remain for the rest of 2007.

On the foreign exchange front, UOB said the local currency is likely to weaken towards 47 against the dollar by end-2007 while interest rates will remain on “pause mode for this year.”

Fiscal discipline, UOB said, remains a problem although it thinks that the 2007 deficit will not deviate too much from the P63-billion deficit target.