ADB & DBS raise RP growth forecast

The Asian Development Bank (ADB) sharply upgraded its growth outlook for the Philippines for this year and the next.

The ADB's upbeat prospects were shared by Singapore-based investment bank DBS, which also raised its economic growth forecast for the Philippines from 5.9 to 6.9 percent this year -- higher than the government's official target.

For this year, ADB said that the country would have a much higher growth in gross domestic product, projecting it to reach 6.6 percent, up from its earlier forecast of 5.4 percent.

In its "Asian Development Outlook," a twice-yearly economic publication that was released Monday, the ADB reported brighter prospects for the whole of developing Asia. But it also warned of a "hazy" period for the region in 2008 due to prolonged global financial turmoil and continuing risks of an economic slowdown in the United States.

The country's GDP, the single most closely watched economic indicator that sums up all goods and services produced by the domestic economy, grew by 7.3 percent in the first half -- its strongest in 20 years.

"The economy grew much faster than expected in the first half, with gains in net exports, private consumption, and government spending," the ADB report said. "Remittances from overseas workers continue to support residential real estate investment and private consumption, providing a strong impetus to overall growth."

The ADB also noted that inflation pressures had subsided significantly, with a stronger currency and receding effects of an increase in the value-added tax rate in early 2006.

Thus, the inflation forecast for the Philippines was also lowered to 2.9 percent for this year from 4.8 percent, and to 3.5 percent for next year from 5.0 percent.

DBS expressed its confidence that the government would continue to pump-prime the economy through infrastructure spending.

It noted that the 10-percent growth in investments was largely due to public construction.

"Clearly, spending related to the May 14 elections was more generous than we thought -- government consumption jumped 13.5 percent year-on-year while investment accelerated to 10 percent," DBS said in a study titled, "Economics Markets Strategy."

The investment bank admitted that it was surprised with the country's economic performance in the first half. Prior to the release of the first-half economic report, the bank only projected a 5.9-percent growth rate for the economy for the entire year.

Also, DBS has projected that inflation would settle at an average of 2.6 percent this year. Inflation would likely increase next year, due to the effects of robust growth on consumer prices, and could hit 3.5 percent.