2013-01-01 01:57:53 - Philippines Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com
Following 2011´s disappointing GDP growth of 3.7%, we estimate that the Philippine economy will bounce back with slightly stronger growth of 4.2% in 2012. Weak external demand as a result of a developing hard landing in China and the continued malaise in the eurozone and Japan will continue to weigh on exports, which we estimate will grow only 2.2% in 2012. Following Bangko Sentral ng Pilipinas´ two rate cuts totalling 50 basis points in Q112 (matching our target), we continue to expect the central bank to keep rates on hold through the rest of 2012, as inflation, which remained modest at 2.8% in June, will rise only incrementally to 3.4% by the end of the year.
The Philippines´ fiscal position continues
to improve. We expect the budget deficit to widen to just 2.2% of GDP in 2012, compared with the government´s projection of 2.6%, as spending continues to be limited by administrative difficulties. While its improving fiscal dynamics led to a credit rating upgrade from Standard & Poor´s in July, we note that the Philippines´ low GDP per capita and relatively high debt-to-GDP ratio will most likely prevent it from acceding to investment grade until at least late 2013.
Major Forecast Changes
Following stronger-than-expected Q112 growth of 6.4% year-on-year (y-o-y), we have upgraded the Philippines´ full-year GDP growth forecast from 3.9% to 4.2%. That said, we still expect the economy to slow in the second half of the year as poor external conditions clash with a relatively health domestic economy.
Key Risks To Outlook
A third round of quantitative easing from the US Federal Reserve remains a possibility. This, or a material improvement in the global economy, could see the Philippine peso outperform our bearish end-of-2012 forecast of PHP46.00/US$.
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