PHILIPPINE DAILY INQUIRER - October 6, 2009

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Higher RP growth seen despite ‘Ondoy’

MANILA, Philippines - The Philippine economy can expect a growth rate higher than previous expectations despite the damage from tropical storm “Ondoy,” which may in fact drive expansion of domestic output, according to an investment research unit of UBS.

UBS Securities Pte Ltd., which is part of the Swiss bank group, said recovery efforts would mean a boost to economic activity mainly through government spending.

Also, UBS Securities said in its latest report on the Philippines that the country could afford to incur a budget deficit at more than half the P250-billion government target for the year.

The study, penned by economist Edward Teather, said that while business confidence and regional data suggest there is more to come for the Philippines in terms of the recovery, the human calamity caused by Ondoy could disturb the growth path of the economy.

“However, while disrupted economic activity along with damage to corporate and household balance sheets are both human and economic negatives, the rebuilding effort—probably led by the public sector—could provide a temporary lift for economic growth in coming quarters,” Teather said.

“We retain our forecast for 4.6 percent growth in 2010, but edge up our 2009 real gross domestic product forecast to 1.3 percent (from 0.8 percent)—less than we would have done in the absence of Ondoy,” he added.

Teather said that in the wake of the storm, precautionary buying of basic goods and services could cause a lift to inflation despite government price controls.

He said that even then, the Bangko Sentral ng Pilipinas should see this as temporary and thus play down risks to long-term inflation expectations and keep monetary policy settings easy for now.

Further, Teather argued that while any extra public expense would come on top of an already sharp deterioration in government finances, the Philippines can sustainably run a wider budget deficit in the range of 4 percent to 5 percent of GDP without pushing the debt-to-GDP ratio higher in 2010 and beyond.

Finance Secretary Margarito B. Teves last week expressed commitment to keeping the deficit at P250 billion or 3.2 percent of the total output of goods and services within the country this year, partly due to concerns that the country’s debts already represent some 56 percent of GDP.