UBS upgrades Phl growth forecast to 4.5%

MANILA, Philippines - The Union Bank of Switzerland (UBS) has upgraded its 2012 economic growth forecast for the Philippines to 4.5 percent from 3.3 previously, noting that investor confidence has improved.

UBS said that the improved growth data supports its view that the Bangko Sentral ng Pilipinas (BSP) is already done easing its key policy rates.

In its policy-rate setting meeting last week, monetary authorities took a widely expected pause in its rate cuts.

 The BSP maintained key policy rates, noting that easing inflation has given it more room to pause after two rate cuts this year.

As such, interest rates remained at a record low of four percent for the overnight borrowing rate and at a record low of six percent for the overnight lending rate.

At the same time, monetary authorities noted that the balance of risks to the inflation outlook now leans toward the upside as oil prices have remained elevated and at risk from ongoing tensions in the Middle East as well as strong demand from emerging economies.       

UBS said that prospects are also rosy for investments this year given the strong performance of the Philippine equity market. It noted that the Philippine equity market has already outperformed its peers.

“Relative to ASEAN, the recent outperformance of the Philippine equity market seems linked to prospects for an upswing in investment. We can see the potential for a further leg up in investment activity as GDP growth recovers from a slower than average pace in 2011 - based on easy credit conditions and available savings,” UBS said.

The investment bank noted that that state disbursements have already picked up this year.

 “The national government spending growth as we hoped and the BSP has eased monetary policy while other lead indicators suggest a trough in the cycle was reached earlier than we anticipated. We choose to reflect the apparent burst of growth in early 2012, with the possibility of consolidation in the second quarter of the year, ahead of a return to more steady growth. To be sure, national accounts data barely reflected the weakness in high frequency exports and manufacturing data in 2011 and so we do not reflect the full extent of the rebound in our forecasts,” UBS said.

For next year, UBS expects the Philippine economy to grow by 4.7 percent.

Government economic managers has an economic growth target of five percent to six percent for the year and a growth of six percent to seven percent in 2013. Last year, the economy grew by only 3.7 percent from the 7.6 percent recorded in 2011.