PH growth to slow to 5.5% amid strong peso - analyst
SLOWER GROWTH. Goldman Sachs ASEAN economist Mark Tan says the country's economic growth will only be slightly above 5% in 2013 and 2014. Photo by Lean Santos/Rappler
MANILA, Philippines - The strengthening of the Philippine peso against the US dollar and higher inflation could be among the factors that will cause the country's economic growth to slow to 5.5% in 2013 and 2014.
In a briefing on Thursday, May 23, Mark Tan, the ASEAN economist of Singapore-based Goldman Sachs, said the country's Gross Domestic Product (GDP) growth will be around 5.5% in the next two years and an average of 5% between 2013 to 2016.
These forecasts are lower than the government's projection of 6% to 7% in 2013, and 6.5% to 7.5% in 2014.
Strong peso
Tan said the strong peso will not be a hindrance to the steady inflow of Overseas Filipino Worker (OFW) remittances but it will play a some role in reducing consumption spending.
In a report, Goldman Sachs projects the peso to strengthen further to P37.5 to the dollar in the next 12 months from March 2013.
It expects the local currency to gradually strengthen to an average of P39.8 in the next 6 months or (up to September), from P41 in the next 3 months (up to June).
Their data showed that other ASEAN currencies are also bound to strengthen against the dollar. The Singapore dollar is expected to strength to 1.18 to the US dollar while the Thai Bhat is forecast to hit 28.8 to the greenback by March 2014.
"You have to take into consideration whats happening to the other currencies as well. Exchange rates are a relative thing, so on a broad basis, P37.5 is occurring in an environment of broad dollar weakness, so its not going to affect competitiveness that much," Tan stressed.
"We still think that remittances will remain quite robust, actually. Even in previous global growth soft patches, or [the 2008] crisis even, you still see strong OFW flows coming in," he explained.
Higher inflation
Goldman Sachs forecast inflation to increase to 4.2% in 2013 before slowing to 3.8% in 2014. While these are still within the government's 3% to 5% target, Goldman's forecasts are on the higher end of the official estimates.
Tan said some of the inflation drivers include the strong domestic demand and robust credit growth in the Philippines.
The country's inflation rate in the January to April period reached 3% in the first quarter. Inflation was at 2.6% in April, the lowest since the 2.6% posted in March 2012.
Lower transport, as well as food and beverage, costs led to lower inflation rate in April.
Global woes, local drivers
Domestic consumption will be the main growth driver for 2013 while a recovery in the country's export revenues will prop up the country's economic growth in 2014.
"We think domestic demand continues to be the major driver, private consumption, private investment continues to be strong.
[For] exports, we do expect some improvement just because global growth is going to pick up this year, according to our forecast, but we expect exports to pick up more sustainably next year. This year, its going to be mostly domestic drivers," Tan said.
Tan said Goldman Sachs expects the country's export revenues to gradually recover in the second quarter before posting stronger growth in the second semester of 2013. This growth will be sustained until 2014 and driven by improved global demand for products.
The government disclosed that the country's export revenues in the first 3 months of 2013 posted a contraction of 6.2% to $12.080 billion from $12.876 billion in the same period in 2012. Exports in March, however, inched up by 0.1% to $4.329 billion from $4.322 billion. - Rappler.com
