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HK-based investment group sees 2008 RP growth at 3.9 pct only

A Hong Kong-based brokerage and investment group has painted a much gloomier 2008 forecast on the Philippine economy on Friday compared to other investment groups.
CLSA Asia-Pacific Markets sees the countrys economy slowing down to 3.9 percent for 2008. It cited weak export earnings and remittances from overseas Filipinos as well as rising inflation.

CLSA,iIn its weekly economic commentary entitled "Manila Oblivion," said the Philippines gross domestic product would expand only by 3.9 percent this year and further slowing down to 3.4 percent next year from a record 7.3 percent last year.

"We are less sanguine, forecasting 3.9% growth this year and 3.4% in 2009, after 7.3% growth last year," the investment bank said in its commentary.

The country's GDP recorded its fastest level of growth in 31 years with 7.3 percent in 2007 from 5.4 percent in 2006. This was faster than the government target of 6.1 percent to 6.7 percent.

Lower than other estimates
CLSAs forecast was way below the government 2008 target of between 6.3 percent and seven percent.

"We expect economic growth to moderate this year on the back of slowing remittance inflows, weakening export demand and as rising inflation bites in to real spending," CLSA added.

ING Investment Management Philippines chief investment officer Paul Joseph Garcia said on Thursday they see the Philippines GDP growth at 5.6 percent.
Global think-tank GlobalSource said on Wednesday it expects the Philippine economic growth to slow to between 5.5 and 5.7% in 2008, on account of a looming US recession and high commodity prices. That's down from its previous estimate of 6.1%.
OFW remittances
CLSA said the 2007 growth figures could be attributed to the six percent growth in consumption due to the record $14.3 billion remittances from overseas Filipinos.

The investment bank said however remittances from the overseas Filipinos are more vulnerable despite growing 15 percent in the first two months of the year. It said that the majority of the overseas jobs are in pro-cyclical sectors and about 50 percent are in the United States.

Furthermore, it warned that rising inflation due to higher oil and food prices is eroding purchasing power. The countrys inflation has kicked up to a 20-month high of 6.4 percent in March from 5.4 percent in February due to rising oil and rice prices.

"The rise in inflation due to rice prices bears close watch though not only because of the adverse implications for consumer spending but also government finances," CLSA said.

NFA losses
CLSA also sees the state-run National Food Authority losing between P40 billion and P50 billion in 2008 due to the rice crisis putting more pressure on the government's commitment to balanced the budget this year.

"There will be fiscal slippage this year even though the budget deficit ended at a decade low of 0.2 percent of GDP last year. Growth in tax revenues are slowing and privatization proceeds are likely to be smaller this year," it warned.

Due to rising inflation, the investment bank sees the Bangko Sentral ng Pilipinas slashing the overnight borrowing and lending rates by 25 basis points this year. The central bank kept overnight borrowing rate at 5.0 percent and lending rate at 7.0 percent Thursday.

Likewise, CLSA pointed out that export growth of the Philippines is past the peak as exports in terms of volume are softening due to the economic slowdown in the US - the country's major export market.