DBS sees 4.8% dip in PHL 2011 GDP growth, but BSP bats for 7% rise

Depending on whom you talk to, the country’s gross domestic product (GDP) by yearend would have slowed down by 4.8 percent or sped up by 7-8 percent. Singapore-based DBS Bank Ltd. slashed on Sunday its projected GDP growth for the country this year from 5.5 percent to a more modest 4.8 percent on expectations of slower private consumption and weaker export earnings brought about by weaker global growth. But the Bangko Sentral ng Pilipinas (BSP) paints a rosier picture with the country's slackening economy picking up in the second half of the year at a rate between 7 percent and 8 percent. BSP Deputy Governor Diwa Guinigundo told reporters on Sunday the Philippine economy will grow with domestic capital formation improving as investments come rolling in with the Aquino administration’s public-private partnership (PPP) infrastructure projects, as well as with rising consumption expenditure buoyed up by robust remittances from overseas Filipino workers (OFWs) and the bustling business process outsourcing (BPO) sector. The Cabinet-level Development Budget Coordination Committee (DBCC) sees the country's GDP has set a GDP growth target of between 7.0 percent and 8.0 percent this year. This despite the expansion of the country's GDP having slowed to 4.9 percent in the first quarter of the year, down from the revised 8.4 percent in the same quarter last year due to government underspending aside from weaker global trade. “The potential capacity or potential output has really gone up that is why you have a good convergence of the high growth rate of 7 percent up and relatively modest inflation rate," he said, stressing the need to keep economic growth strong and inflation stable. Latest DBS report: exports, consumption declining In stark contrast to the BSP’s predictions, the latest DBS economic update titled “Philippines: Weathering Headwinds" sees the country’s private consumption and exports faltering from weaker global growth as shown by the drop in GDP growth in the first quarter of the year. “We are now projecting GDP growth to reach 4.8 percent in 2011 (previous forecast 5.5 percent) on the back of weaker-than expected growth in the first quarter. With the global economy currently running into a soft patch, it is inevitable that the twin growth drivers of the Philippine economy – private consumption and exports –will take a hit," said the DBS report. Last April, DBS raised the country’s projected GDP growth from 5.0 percent to 5.5 percent but kept its 2012 growth forecast pegged at 5.2 percent. On the other hand, the investment bank said the country's domestic output is expected to recover in the second half of the year. DBS is also confident that consumption would remain resilient due to positive jobs data and a slight increase in credit growth. “That said, we do not expect the soft patch will be a long one and while sequential growth will decelerate in the second quarter, it should look firmer in the third and fourth quarters," DBS said. The investment bank’s outlook on Philippine exports was mixed as demand from the US and Europe remained weak but imports of raw materials and intermediate goods registered a very strong growth. “Typically, there has been a correlation between imported raw materials and intermediate goods, and exports of manufactures by the fact that a large proportion of the products will be exported when completed. The sharp ramp up in raw materials and intermediate goods imports point to a pickup in exports in the second half," the report said. As for private consumption, DBS said it accounts for 69 percent of the GDP and would be 4.8 percent on the average for the rest of the year down from 5.6 percent in the first quarter of the year. The investment bank explained that remittances from overseas Filipino workers (OFWs) — which make up for about 10 percent of GDP — has gotten “cloudier" with weak economic growth in the US and Europe. “With the US and Europe as the key sources of this income, weak data there of late is likely to keep remittances muted for now. On the bright side, trouble in Middle East and North Africa appears to be easing," the DBS report said. By region, inflows from the US account for about 42 percent of the total OFW remittances while European countries account for 17 percent and countries in the Middle East accounts for 16 percent. Last April, the BSP lowered its 2011 growth projections for OFW remittances from 8 percent ($20.2 billion) to 7 percent ($20.1 billion) following the unrest in the MENA region and the nuclear disaster in tsunami-stricken Japan. The BSP sees even slower OFW remittance growth of 5 percent ($21.1 billion) next year. “Even the lower figure may be optimistic considering the recent data," DBS warned in view of OFW remittances having grown in the first four months of the year by only 6 percent (from $5.9 billion to $6.2 billion) as compared to the same period last year. BSP: OFW remittances up by 7%, PPP to raise more capital The BSP sees the country's slackening economy picking up in the second half of the year on the back of robust private consumption as well as higher government spending and investments with the launch of the Aquino government's public private partnership (PPP) program. “As usual, the driver would be the two pillars: consumption expenditure and domestic capital formation," Guinigundo said. The BSP deputy governor said that private consumption would not only depend on OFW remittances but on the employment generated by the BPO sector as well. The BSP sees OFW remittances rising by 7 percent to $20.1 billion this year and by 5 percent to $21.1 billion next year. The Philippines’ GDP expanded in the first quarter of this year by only 4.9 percent, much less than GDP growth in the same quarter last year of 8.4 percent. But Guinigundo explained that the country’s GDP growth last year started on a high base, boosted by spending related to the 2010 national and local elections. As such, the Philippines posted last year its strongest economic growth in 34 years when its GDP expanded by an impressive 7.6 percent as compared to 1.1 percent in 2009 when the country was on the verge of a recession due to the full impact of the global financial crisis. As for the role of domestic capital formation, he cited investments in the last few quarters as having eased the impact of the decline in merchandise exports. He said domestic capital formation would further improve once the PPP projects covering much needed infrastructure and development projects are up and running. “If the PPP scheme is put on stream, domestic capital formation will improve and once investments come in people will also be expecting that there will be business in some parts that could already generate economic activities," he explained. Guinigundo also pointed out that imports had grown by more than 20 percent in April as the volume and value of imported mineral fuels and pertroleum products had improved significantly. “Both volume and prices will drive the increase in the value of mineral fuels. This means that the economy is really moving," he said. — MRT/OMG, GMA News