GDP growth to accelerate to 7% in Q2, forecasts UA&P

Katherine Visconti
UA&P economists have such a positive outlook for 2012 they jokingly nicknamed themselves the 'profits of boom'

MANILA, Philippines (UPDATED) – The country’s economic growth is expected to accelerate to 7% in the 2nd quarter on the back of high infrastructure spending, a recovery in agriculture and strong consumption, said economists at University of Asia and the Pacific (UA&P).

UA&P economists agreed that full-year growth may hit 6% to 7%, above the government’s 5% to 6% goal.

“Agriculture will be much better than what we’ve seen in the last quarter. We have the traditional sources, public construction is going on high gear… BPO (business process outsourcing) will continue to be strong. This construction and BPO are very employment generating, therefore consumption spending will continue to be robust,” said Dr. Victor Abola, UA&P’s Program Director for its Strategic Business Economics Program.

Abola also pointed out that growth is likely, coming from the low-base growth recorded in the 2nd quarter last year. Over the course of last year, the Philippines grew by a disappointing 3.7% (revised upward to 3.9%).

Abola and fellow UA&P economist Dr. Rolando Dy think agriculture will rebound to 2.5% to 3% growth by the end of the year, with an anticipated strong performance in the last 3 quarters. In the 1st quarter, agriculture only grew 1% compared to 4.4% in the same period in 2011, given declines in sugarcane, palay, mango and cassava yields.

“If agriculture does better, consumption from agriculture will also be better,” noted Abola.

‘Prophets of boom’ see positive signs

Abola and another economist Dr. Bernardo Villegas have sunny outlooks for 2012. They jokingly referred to themselves as the “prophets of boom.”

The country grew by a whopping 6.4% in the first quarter, achieving the 2nd best growth in Asia after China. The economists agree that puts the full-year forecast of 6% to 7% within reach.

Villegas even believes growth rates of 7% to 10% can be possible in the next 10 years.

He thinks election spending will boost GDP in the last 3 months of the year. “Expect in the last quarter not just the usual flow of bigger OFW [remittances], but also a lot of officials using their last try to convince voters that they should be reelected.”

Abola, on the other hand, thinks the investment environment would remain friendly, thanks to low interest rates. He forecasts inflation will stay between 3.2% to 3.4% for the year, which is within the central bank’s forecast of 3% to 5%. Abola expects the local stock exchange to hit the 5,500 level by end of the year, a 25.8% increase from last year.

He acknowledged infrastructure spending has remained below regional neighbors’, at an annual average of 3% of GDP from 1980 to 2009. By comparison, he said Thailand and Singapore put an average 4% of GDP towards infrastructure over the same period. However, he said the goal to bring infrastructure spending to 5% of GDP by 2015 from 2% in 2010 is achievable.

Abola is also confident about the 6% to 7% growth forecast because of recent spikes in power consumption, as seen by increasing volumes sold by the Philippines’ biggest power retailer, Manila Electric Co (Meralco).

“What we’ve seen in Meralco is that (the volume of) electricity sales (in gigawatt hours) have accelerated sharply from the 4th quarter of last year up to the 2nd quarter of this year, from 4% (in the 4th) to 10.5% (in the 2nd). There’s a very high corrolation between your GDP growth and your Meralco sales growth. Factories and industries need power,” he said.

Abola said the impact of the Euro crisis on the Philippines would likely be relatively low. All in all, the “prophets of boom” foresee a positive outcome for the year. –