Goldman Sachs upgrades RP growth outlook to 7.4% this year

MANILA, Philippines - US-based investment bank Goldman Sachs upgraded the country’s economic growth outlook to 7.4 percent instead of 4.2 percent this year on the back of the stronger-than-expected rebound in the first half of a year.

“For full-year 2010, we remain confident in our GDP growth forecast of 7.4 percent, versus the consensus expectation of 6.3 percent. On a sequential basis, we expect the growth momentum to ease to 2.5 percent quarter-on-quarter for the third quarter of 2010 and fourth quarter, from 5.3 percent in the second quarter, as the global economic momentum softens in second half of 2010,” Goldman Sachs said.

The upgraded GDP growth forecast of Goldman Sachs was more optimistic than the revised GDP growth target of five to six percent instead of 2.6 percent to 3.6 percent set by economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC).

Latest data from the National Statistical Coordination Board (NSCB) showed that the country’s domestic output expanded by a surprising 7.9 percent in the first half of the year from 1.2 percent in the same period last year. The country’s GDP growth zoomed to 7.9 percent in the second quarter from the revised 7.8 percent expansion in the first quarter of the year.

“The second quarter 2010 GDP print confirms that the recovery process is firmly on track, and we expect it to continue to get support from the two engines of flows-stable remittances and growing information technology service exports,” it explained.

The country’s merchandise exports increased by 37.3 percent to $32.97 billion in the first eight months of the year from $24.01 billion in the same period last year. The DBCC sees this year’s merchandise exports increasing by 15 percent.

“We saw strength in the exports of the two largest product groups: electronics and apparel and clothing. In terms of exports destination, exports to Singapore and China both registered the strongest growth, which we believe are related to electronic exports,” Goldman Sachs added.

The investment banks sees remittance of overseas Filipino workers (OFWs) growing by 10 percent this year from a record $17.35 billion last year.

The BSP has upgraded its remittance growth forecast to eight percent instead of six percent on the back of the strong demand for professional and skilled Filipino workers abroad. The amount of money sent home by Filipinos abroad increased by 7.1 percent to $10.679 billion in the first seven months of the year from $9.973 billion in the same period last year.

“We expect this to continue to provide steady support to private consumption, the balance of payments, GDP growth and the Philippine peso,” Goldman Sachs said.

On the other hand, the country’s balance of payments (BOP) surplus surged by 25.3 percent to $3.478 billion in the first eight months of the year from $2.775 billion in the same period last year due to robust remittances as well as strong foreign exchange inflows. The BSP believes that the revised BOP surplus target of $3.7 billion this year would easily be breached.

For next year, the investment bank sees the Philippines posting a slower GDP growth of five percent due to the slowdown in worldwide economic growth.

“Going into 2011, our GDP growth forecast stands at 5 percent year-on-year,” it said.

Goldman Sachs sees the peso further strengthening to 41 to $1 over the next 12 months.