Philippines: Country Economic Forecast: 08 Aug 2013

Oxford Economics
August 8, 2013
10 Pages - SKU: OFE5097479
Countries covered: Philippines

Philippines: Country Economic Forecast: 08 Aug 2013

The Philippines was the fastest growing economy in the Asian region in Q1, with GDP up 7.8% on the year. This strong momentum contrasts with much of the rest of the region, where GDP fell short of expectations. In China, the authorities seem willing to tolerate slower growth than in the recent past, which will hold back regional trade. As a result, we lowered our forecast for growth across the region last month, including for the Philippines. We now expect the economy to grow by 6.5%, followed by 5.3% in 2014. CPI inflation was 2.5% in July, below the target range (3-5%). Consequently, we expect the central bank to keep its main policy rate at 3.5% until next year. Loose monetary policy has promoted strong lending growth and encouraged consumer spending. Uncertainty in global financial markets since mid-May has kept most currencies in the region at lower levels than seen earlier this year. The peso is around 43.5 PHP/US$, over 5% down on its end -2012 rate. This not only helps exporters but also boosts the spending power of foreign currency remittances. Continued strength in government spending will also support the economy. Furthermore, its impact on the budget deficit is expected to be less marked than previously forecast. Measures to broaden the tax base are now feeding through and revenues rose strongly in Q2 2013. We now expect a fiscal deficit of 2.2% of GDP this year. Meanwhile, although trade flows remain subdued, positive indicators from the electronics sector continue to point to an improving situation in late 2013

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