Economy projected to grow 7.5-8% this year

MANILA, Philippines - The Philippine economy is expected to further expand by 7.5 to eight percent this year on the back of heavy election spending, increased infrastructure projects, robust consumer and service sectors, and stronger tourism and gaming industry, economists said.

In an economic outlook forum yesterday, First Metro Investment Corp. (FMIC) said they have “ a very optimistic outlook for the Philippine economy for 2013.”

FMIC chairman Francisco Sebastian said with a 7.1 percent in gross domestic product in the third quarter of 2012, a lower than expected inflation rate of 3.2 percent, gross international reserves (GIR) rising rapid and a debt-to-GDP ratio that has fallen below 50 percent, the Philippines is definitely now on the rise.”

The country’s GDP is estimated to grow at 6.3 percent while GIR was at $84.5 billion in 2012.

The country’s international reserves come from government’s foreign borrowings, remittances from OFWs and portfolio investments.

OFW remittances will remain resilient, according to FMIC, at four to five percent growth despite the Israeli-Palestine conflict, euro zone debt problem and the fiscal cliff in the US as demand for Filipino workers will be sustained, which will continue to stimulate and intensify domestic consumption.

“The economy is in an unprecedented growth momentum, supported by solid fundamentals,” Sebastian said.

“As a result of robust economic growth, the government’s pungent anti-corruption stance that has improved tax administration and with new tax revenue sources, budget deficit will remain low and may not reach P200 billion or 1.5-1.6 percent of GDP. Debt-to-GDP ratio is expected to fall further and it will be lower than Thailand,” FMIC president Roberto Juanchito Dispo said.

Dispo said they also expect a revival of mining companies in order to sustain the resurgence of the manufacturing sector.

Despite the positive outlook, University of Asia and the Pacific (UA & P) economist Vic Abola, for his part, warned of the internal threats that need to be closely looked at.

Abola said growth could be hampered by the peso appreciation as this would redound to slower growth in imports/exports ratio; lower job creation and lower tax collections.

But imports, FMIC officials said, is expected to significantly jump 10 to 15 percent supported by high domestic growth as well as resurgence of the manufacturing sector.

FMIC, in its outlook, said the peso will remain in an appreciation trend and is seen to average at 41 to 42 to the dollar this year. UA&P, on the other hand, sees the peso to averaging 42 to a dollar in 2013. The peso settled at 41 average in 2012.

The power shortage especially in Mindanao, Abola said, would also dampen investment activities in the province which may cause a dent in the entire economy.

The UA&P economist also took note of the threat of possible real estate bubble.

Monetary authorities must also keep track of the inflation rates.

“Inflation is anticipated to further drop to an average of 2.8 percent supported by stable food and oil prices. The National Government is spending more money in agriculture in the form of rehabilitation and construction of more irrigation systems, farm-to-market roads and storage facilities. International rice prices have also remained stable due to abundant inventories,” FMIC noted.

FMIC said further softening of oil prices is expected as a result of larger surplus with the continued expansion of shale oil and gas output in the US and Russia. Oil price forecast is at $93 per barrel.

Lower interest rates, on the other hand, would affect the income performance of companies, particularly those engaged in financial transactions, FMIC assistant vice president Bede Lowell Gomez said.