Philippines seen better positioned in ASEAN

THE PHILIPPINES is expected to face relatively stable growth prospects well into next year, being less exposed to global markets than its more developed peers in the Association of Southeast Asian Nations (ASEAN), a research note of UBS Securities Pte. Ltd. showed.The paper, dated Aug. 1 and titled: "ASEAN: how deep are those pockets?" noted that "global economic and financial conditions are not normal."

"So although domestic financial conditions remain conducive, export and commodity market prospects are likely to sap the willingness of ASEAN households and firms to keep spending," read the note, which was made available to reporters yesterday.

It noted further that "ASEAN’s healthy financial balances have been providing some insulation, but do not mean immunity, from the weak external environment…"

UBS explained that a combination of a global environment that is now no longer seen to improve this semester "to the degree we expected" and shrinking net transfers and income from abroad that would otherwise have provided sufficient elbow room to back domestic spending prompted it to cut its growth projections particularly for Malaysia, Singapore and Thailand.

While the note had minimal remarks on the Philippines, a table on the five ASEAN members covered showed UBS had kept original 2012 and 2013 growth projections only for Indonesia (6.0% this year and 6.1% next year) and the Philippines (4.5% and 4.7%, respectively).

UBS kept Malaysia’s growth outlook at 4.0% this year but downgraded that country’s projection next year to 4.5% from an original 5.3%. It also downgraded projections for Singapore (2.0% from 3.0% this year and 4.5% from 5.0% next year) and Thailand (5.5% from 6.0% and 4.5% from 5.5%, respectively.)

UBS noted that Southeast Asian "fiscal and monetary policy makers have flexibility to provide stimulus".

But while it said that "lower interest rates are possible in the Philippines", UBS said "more negative economic news…than we anticipate would be required to push the central bank to ease [policy interest rates] again."

The Bangko Sentral ng Pilipinas (BSP) has so far cut key rates by a total of 75 basis points since the year began to the current historic lows of 3.75% and 5.75% for overnight borrowing and lending, respectively. In doing so, BSP noted the country’s manageable inflation outlook gave it room to cushion the economy from a protracted global economic downturn.

The central bank also cited the need to stem capital inflows that have helped drive the peso to strengthen nearly 5% over its level at the start of the year, even as the local currency yesterday shed 8.5 centavos to the dollar to close at P41.85 from Wednesday’s P41.765 finish.

UBS added that while "fiscal policy is loosening…we do not anticipate additional stimulus outside the budget cycle."

It also noted that "several infrastructure projects are due to be tendered, with the possiblity of some growth impact in 2013."

Philippine gross domestic product (GDP) grew by a surprising 6.4% in the first quarter, a performance state economic planners say was likely maintained from April to June. Second-quarter data is expected to be reported this month. The Development Budget Coordination Committee has projected GDP to grow 6-7% in 2013, 6.5-7.5% in 2014, 7-8% in 2015 and 7.5-8.5% in 2016. 

- BW Online