Feb. 20, 2011 -
PRLog -- Impressive 100 Days, But Challenges Remain T he Philippine economy grew by an impressive 7.9% year-on-year in Q210, slightly faster than the 7.8% growth figure registered in the previous quarter. When broken down into GDP by expenditure, private consumption remained the most important driver for headline growth. Indeed, the expenditure component expanded by 4.0% in the second quarter, adding 4.0 percentage points to the overall real GDP growth figure. As a result of the strong economic outturn in H110, we have raised our full-year forecast for 2010 to 6.2%, from 4.9% previously. For 2011, however, we believe the strong growth momentum will fizzle out, with the external sector dragged down by a slowdown in Chinese demand, slowing growth to a weaker - but still respectable - 4.0% in 2011. President Benigno Aquino III 's performance during his first 100 days in power was commendable, having managed to push forward initial plans to attract more investment inflows into the Philippines. In particular, Aquino successfully secured US $2.4bn worth of funding from international investors following his trip to the US in September. The list of investors includes global players such as Coca-Cola and AES Corporation. That said, Aquino still faces a number of formidable obstacles in his moves to reduce graft, as evidenced by the spate of legal challenges mounted by political opponents allied to former leader Gloria Macapagal Arroyo, suggesting progress will be slow on this front. I n terms of monetary policy, we have revised our interest rate targets downwards and now see the benchmark overnight and lending rates remaining unchanged at 4.00% and 6.00% respectively by the end of 2010 (from 4.50% and 6.50% previously). Indeed, lower-than-expected consumer price inflation in recent months - coming in at only 3.5% year-on-
year in September, slower than the 4.0% figure recorded in August - compelled us to tone down our view. Going forward, however, persistently loose borrowing conditions may cause a quick return to high inflation, which may cause the overnight borrowing and lending rates to rise to 4.50% and 6.50% respectively by end-2011. With the implementation of the government's Philippine Export Development Plan for 2011-2013, we expect more investors to use the Philippines as a base to conduct business going forward. The Department of Trade and Industry has identified several vital sectors that should be prioritised to boost export growth - including tourism, information technology as well as semiconductors and electronics - with the aim of pushing these industries up the value chain to improve the country's aggregate export value. This should pose upside risk to the country's business environment rating over the longer term, which is currently at 49.9.
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