PH ability to sustain strong growth doubtful

By Lawrence Agcaoili, The Philippine Star

Posted at Jun 03 2012 10:07 AM | Updated as of Jun 04 2012 03:53 PM

MANILA, Philippines - Forecast Pte, a Singapore-based financial market analysis provider, has cast doubts the stronger-than-expected economic growth booked by the Philippines in the first quarter could be sustained for the entire year due to the debt crisis in Europe and the slowdown in China.

Forecast economist Radhika Rao, in a research note, said the gross domestic product (GDP) growth in the first quarter would likely not be sustained, prompting the company to retain the country's growth forecast at 4.4 percent this year.

"While the strong first quarter numbers validated our bullishness on the economy's growth prospects, a repeat however is unlikely in rest of the year as external uncertainties muddy the outlook hereon. We thereby maintain our 4.4 percent GDP forecast for the year," Rao stressed.

The National Statistical Coordination Board (NSCB) reported last week that the country’s GDP growth zoomed to 6.4 percent in the first quarter from the revised four percent in the fourth quarter of last year on the back of robust domestic demand, higher government spending, and recovering exports.

However, Rao pointed out that there are signs that the regional trade sector is losing momentum on lack of sustained pick-up in demand from the advanced economies and China.

She said the slowdown has translated into moderation in the production activities especially in the export-oriented industries.

In addition, she explained that heightened financial market turbulence would not only deter short-term foreign investment inflows but also slow foreign direct investment (FDI) commitments amid concerns over valuation and weak business sentiments.

The economist revealed that key downside risks for the Philippines include prolonged weakness in exports on recession in the European countries, moderation in the signs of revival in the US, and the burst in pace on Thailand’s recovery from the floods.

Likewise, she cited the possible slowdown in the amount of money sent home by Filipinos abroad as remittances grew only 5.4 percent in the first quarter of the year compared to the 7.2 percent expansion booked last year.

Rao said another factor is the slowdown in private and foreign investments this year.

According to her, the government and the BSP have firepower to cushion downside risks to growth should external headwinds strengthen considerably in the course of the year.

The Cabinet-level Development Budget Coordination Committee (DBCC) has forecast the country's GDP expanding between five percent and six percent this year after slackening to 3.9 percent last year from 7.6 percent in 2010 due to weak global trade and cautious spending by the Aquino government.

Several investment banks and think tanks, including New York-based Global Source Partners, London-based Barclay Capital and Nomura of Japan, have upgraded the country’s GDP growth forecast this year after a surprising expansion in the first quarter of the year.