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Economics: Philippines
Economics – Markets – Strategy
PH: Back-tracking
• Things have turned topsy-turvy in the Philippines. Growth has been weaker
than expected and inflation is at a ten-year high
• First-quarter growth was low 5.2% YoY and 4Q07 growth was revised
downward to 6.4%. Although the revision made little difference to 2007
growth – fast 7.2% growth was recorded, the highest since 1981 – the pace
is now slowing. As surging inflation and higher interest rates take their
toll, growth this year should fall to 5.2% before recovering to 6% in 2009
• Inflation this year should average 9%, far above the central bank target of
3%-5%. We expect the BSP to continue lifting interest rates in 2H08, taking
the reverse repo (overnight borrowing) and repo (overnight lending) rates
75bps higher, to 6% and 8% respectively
• To cushion against slower growth, the government has deferred plans to
balance its budget this year. It is looking at spending up to PHP 1.26trn,
which it estimates will take the deficit to GDP ratio to 1%. We do not see
any risks to its projections; indeed chances are for an even slightly smaller
ratio of around 0.8%
PHILIPPINES
Following the 1Q07
GDP report, we
have cut our
growth forecast to
5.4% for 2008 and
6% for 2009
Growth slows
It is no exaggeration to say that first-quarter GDP growth was a shocker. We had
been expecting a slowdown from the blistering pace of growth in 2007, but not
that slow. The economy expanded just 5.2% YoY in 1Q08, versus our sub-consensus
forecast of 5.8%. Growth in 4Q07 was shaved a whole percentage point lower
from earlier estimates, to 6.4% YoY. Although the fourth-quarter revision was
“compensated” for by an upgrade to the 2Q07 numbers, which kept growth for
the full 2007 still robust at 7.2%, it still meant a very different growth profile
from the one we were looking
at three months back (Chart
1). Back then we would have
guessed a much more gradual
slowdown from 2007, to the
tune of 6.6% in 2008 and 6.7%
in 2009. Now, however, the
adjustment appears somewhat
sharper, and for this year and
the next we have revised our
growth forecasts lower, to 5.4%
and 6% respectively. The reasons
for the slowdown remain the
same as we have previously
laid out, with both domestic
and external demand set to
deteriorate, but now to a greater
degree than we initially
estimated (Chart 2).
Chart 1: Growth profile sharply lower
% YoY
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
Growth path
as at 1Q08
Growth path
as at 4Q07
7.4
6.4
Mar-06 Sep-06 Mar-07 Sep-07 Mar-08
5.2
Lim Su Sian • (65) 6878 1740 • limsusian@dbs.com
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