DBS revises 2012 growth, inflation forecast for Phl

MANILA, Philippines – Singapore-based DBS Bank revised upward its 2012 growth and inflation forecasts for the Philippines, noting of the stellar second quarter growth and faster price increases recorded last month.

In its Daily Breakfast Spread released yesterday, DBS said it now expects the local economy to grow by 5.6 percent this year from the original forecast of 5.3.

The investment bank also raised its inflation forecast to 3.3 percent from 3.1 percent initially.

“The Philippine economy has been a clear outperformer thus far this year, registering high growth rates and low levels of inflation,” DBS said in a report.

For 2013 however, growth is expected to cool to five percent from the original target of 5.2 percent “due to weaker global environment.” Rise in consumer prices, on the other hand, is expected to accelerate to 3.9 percent from the original 3.7 percent.

“That is largely (due to) base effects as higher food prices from this year spills over to 2013,” DBS economist Eugene Leow said in an e-mail.

Growth registered at 5.9 percent in the second quarter, faster than the 3.6 percent recorded last year, but was slower than the revised 6.3 percent in the previous three months. Still however, first semester growth of 6.1 percent was slightly better than the government’s five- to six-percent target for the year.

Inflation, on the other hand, accelerated to 3.8 percent in August from 3.2 percent in July as monsoon rains last month caused food supply to tighten and thus raised prices. Nevertheless, the year-to-date inflation of 3.2 percent is still at the lower-end of the central bank’s three- to five-percent goal.

DBS said strong domestic demand has been providing support to the local economy as slowing growth in developed markets such as Europe and the United States dent demand for export products abroad.

Exports “final demand has clearly been weak,” DBS said, pointing to a slowdown in June export receipts, which grew by only 4.2 percent from May’s 19.7 percent and April’s 7.6 percent. July export data is scheduled to be released today.

“Export deterioration is likely to prompt more action by the end of this year and we expect the overnight policy rate to end the year at 3.5 percent, down from 3.75 percent currently,” the investment bank said.

The Bangko Sentral ng Pilipinas (BSP) will review policy rates this Thursday, but DBS said “a rate cut does not appear likely as BSP may want to anchor inflation expectations first.” Hence, any rate cut as DBS projected could happen either on Oct. 25 or Dec. 13, the last two BSP policy meetings for 2012.