MANILA, Philippines - As growth prospects improved in recent months, Standard Chartered Bank has revised upward its forecast gross domestic product (GDP) growth for the Philippines to 7.1 percent from 6.7 percent this year.
“We are optimistic on the Philippines’ 2014 growth prospects, and revise up our GDP growth forecast to 7.1 percent from 6.7 percent. Domestic growth has been strong in recent months, and export growth was positive in early 2014,” the bank said in its latest global research report.
It noted that export growth has remained respectable, despite roadblocks. Merchandise export growth was 6.5 percent year-on-year in the first quarter, down from 19.3 percent in fourth quarter in 2013 and 11.4 percent in Q3 as the government banned trucks from travelling during rush hour in Manila.
“The ban has affected container traffic and increased shipping backlogs at the port of Manila, which handles more than half of the country’s overseas freight, according to Bloomberg. The external outlook is bright, however – demand from Japan and the US is likely to remain supportive of export growth. Exports of both electronic and non-electronic manufactured goods have been healthy over the past six months,” it said.
The report took note that wage growth has been below GDP growth in recent years.
“Wage growth averaged 4.7 percent from 2010-13, below the average GDP growth rate of 6.4 percent in the same period. Sustained wage growth and inclusive development could prompt more overseas Filipino workers to return home. The number of workers deployed overseas grew 6.8 percent in 2012, slightly below the 10-year average of 7.4 percent,” it said.
The report noted that there have been positive earnings momentum and outlooks for large companies which is expected to boost the country’s economy.
“This has been achieved despite a number of constraints on growth, including transport gridlock in Manila and slow progress on infrastructure and Public-private partnership (PPP) projects,” it said.
StanChart also raised its first quarter GDP projection growth to 2.4 percent from 1.5 percent in the fourth quarter of 2013.
It further noted that S&P’s recent upgrade of the Philippines’ sovereign debt rating will likely boost confidence in the economy in the short term.
“Should other rating agencies follow suit, confidence is likely to rise further. The outlook has brightened as the Philippine peso, gross international reserves, and remittance growth rebound from their Q1 weakness. We look for more progress on typhoon reconstruction and infrastructure development to add to growth later in the year,” it said.
However, the StanChart report warned that food inflation poses upside risks to inflation, although other price pressures have subsided for now.
“A potential El Niño weather event may boost food inflation this year but a Supreme Court order against electricity price hikes should contain near-term inflation risks,” it said.
“We continue to forecast benign inflation of 4.4 percent for 2014,” it added.
The bank said it expects the central bank to hike rates by a total of 50 bps this year, taking the policy rate to four percent by year-end.