Barclays Capital hikes 2010 GDP growth forecast to 6%

MANILA, Philippines - London-based Barclays Capital revised upwards its economic outlook for the Philippines to six percent this year from the original 4.3 percent after its domestic output as measured by the gross domestic product (GDP) zoomed to its fastest pace in three years on the back of strong election-related spending.

Barclays Capital economist Prakriti Sofat said in a market commentary that the country’s GDP expanded by 7.3 percent in the first quarter of the year from 0.5 percent in the same quarter last year.

Sofat pointed out that GDP growth posted in the first quarter of the year was better than the projected expansion of five percent set by Barclays Capital.

“Election-related spending no doubt provided a healthy boost to the economy, especially domestic demand. History shows that in the quarter before elections, GDP bounces strongly,” she stressed.

GDP is defined as the value of all the final goods and services produced in a country during a given time period. It also refers to the income of the country as well.

The investment bank said GDP expanded by 2.2 percent in the first quarter of 2004, by 2.8 percent in 2007, and by three percent in 2010. The years 2004, 2007, and 2010 are election years.

Quarter-on-quarter, she pointed out that the country’s GDP expanded by three percent or about three times market expectations and the fastest pace since September 1988.

“We are revising our 2010 GDP forecast to six percent from 4.3 percent previously,” the economist added.

Local economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) sees the country’s GDP bouncing back to a range of 2.6 percent to 3.6 percent this year after slackening to 0.9 percent in 2009 from 3.8 percent in 2008 due to the full impact of the global economic meltdown.

The growth in the first quarter was also better than the projected growth of 2.9 percent to 3.9 percent announced by Socioeconomic Planning Secretary Augusto Santos earlier.

According to her, the main impetus to GDP growth in the first quarter came from private consumption expenditure that rose by 5.9 percent and added 4.5 percentage points to country’s domestic output in the first quarter of the year. 

She explained that household spending was supported by election-related handouts and robust remittances from overseas Filipino workers (OFWs) that rose by seven percent in the first quarter of the year.

“Looking ahead, the outlook for consumption remains strong given our expectations that remittances will rise by 10 percent in 2010,” she said.

Sofat also cited investment as the other main driver in the GDP growth after expanding by 15.7 percent and addiing 2.7 percentage points to the GDP growth from January to March.

“The turn around in investment was much sharper than we were anticipating and suggests that businesses are becoming more confident about the recovery,” she said.