2013-02-22 13:41:41 - Fast Market Research recommends "Philippines Business Forecast Report Q2 2013" from Business Monitor International, now available
Following estimated growth of 6.0% in 2012, we forecast the Philippine economy to expand by 5.0% in 2012. Leading the way forward, we envisage a strong comeback in fixed capital growth in 2013, and believe that this will mark the beginning of a longer-term resurgence in investment.
Inflation ended 2012 at a benign 2.9%, but we retain our end 2013 inflation forecasts of 4.0% as price pressures are expected to rise gradually as a result of strong economic activity and loan growth on the back of easy monetary policy. At the same time, we do not expect the Bangko Sentral ng Pilipinas (BSP) to raise its benchmark interest rate before the end of 2013. While we are currently forecasting for
the central bank's benchmark interest rate to end 2013 at its current 3.50%, and we continue to believe that risks to this forecast are to the downside, with additional rate cuts not out of the question.
Despite the fact that the Philippines has passed another expansionary budget for 2013, we expect the budget deficit to widen to come in at a manageable 2.0% of GDP in 2013. While spending continues to be limited by administrative difficulties, revenue growth will be supported by the government's increasing tax collection efficacy and the introduction of a wide-ranging sin tax. Notably, we believe that 2013 will be the year in which the Philippines achieves an investment grade rating from at least one of the three major ratings agencies in view of the country's improved growth outlook and the government's increasingly consolidated fiscal position.
Full Report Details at
- www.fastmr.com/prod/536372_philippines_business_forecast_report_ ..
Major Forecast Changes
We have upgraded our 2012 and 2013 GDP growth forecasts to 6.0% and 5.0% respectively in light of the economy's impressive trade performance and our expectations for an investment revival in 2013
Following the BSP's rate cut to 3.50%, we expect the central bank to keep its key policy rate on hold for a potentially extended period as growth continues to outperform amid a dovish inflationary environment.
We have upgraded our end 2013 forecast for the Philippine peso to PHP41.50/US$, and note that risks to this forecast remain to the upside given the large scale of the US Federal Reserve's QE3 initiative and continued strong hot money inflows into the Philippines.
Key Risks To Outlook
Risks to our 2013 growth forecast are to the upside in the event that exports continue to outperform despite continued weakness in external demand. Risks to our peso outlook are likewise to the upside, as the currency could continue to outperform in the event that hot money outflows hold up for a longer than expected period.
Partial Table of Contents:
Major Forecast Changes
Key Risks To Outlook
BMI Political Risk Ratings
Strategic Relations To Be Bolstered Following Abe's Accession
- In view of China's ongoing ascendancy to the position of Asia's regional hegemon, the Philippines has found a natural partner in Japan as a potential counterbalance in increasingly contentious territorial disputes with the mainland. While we expect Philippine security relations with Japan and the US to continue to strengthen, we note that territorial disputes between China and the Philippines are as of yet unlikely to cause anywhere near the scale of economic damage seen in the Japan-China row, even in the relatively likely event that confrontation reemerges.
TABLE: PHILIPPINES POLITICAL OVERVIEW
Long-Term Political Outlook
Prospects For Improving Governance
- The Philippines faces a number of political challenges over the coming years that, if handled successfully, could improve governance. However, given low income levels and high levels of inequality, we expect the political scene to remain vulnerable to intermittent instances of turmoil.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Government Continues To Consolidate Fiscal Position
- Despite the fact that the Philippine government has approved yet another expansionary budget for 2013 (with spending set to climb by an estimated 10.5%), we continue to find that the government's debt position is on a positive trajectory. We believe that following an estimated fiscal deficit equivalent to 2.1% of GDP in 2012, the shortfall is likely to tick up only slightly in 2013 to 2.2%, remaining within manageable parameters.
TABLE: FISCAL POLICY
BSP Casting A Wary Eye Towards Hot Money Inflows
- With headline inflation remaining well within the Bangko Sentral ng Pilipinas (BSP)'s target range, we expect the central bank to retain a slight easing bias, at least through H113, although we do not expect any further interest rate cuts at this time. While inflationary pressures are not presently a concern, we expect consumer price appreciation to accelerate moderately throughout 2013 amid the country's environment of easy monetary policy and solid economic growth, and we therefore retain our end-year inflation forecast of 4.0%.
TABLE: MONETARY POLICY
Balance Of Payments
Remittances Rolling On, But Hot Money Inflows Pose A Challenge
- The Philippine economy continues to benefit from strong remittance growth as the vast diaspora of overseas Filipino workers provides a robust and consistent source of foreign income. On the other hand, record hot money inflows pose an increasing risk to both the peso and equities, and the potential for a rapid reversal of these inflows may spur the Bangko Sentral ng Pilipinas (BSP) to institute a minimum holding period on portfolio investments. Moreover, we continue to find that Philippine equities are expensive at their current levels, and would look to re- initiate a bearish position in the Philippines Composite Index (PCOMP) should the index break below technical support.
TABLE: CURRENT ACCOUNT
Long-Term Limitations Remain In Play
Full Table of Contents is available at:
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