By Maricel E. Burgonio Reporter

Credit expansion could improve the growth of the Philippines’ gross domestic product this year, according to the latest Asian Economic Monitor report of UBS.

UBS sees GDP growth reaching 5.9 percent this year from 5.4 percent in 2006 as credit expansion drives up investments in the construction, mortgage and infrastructure areas.

“The main macro story for 2007-08 is the credit expansion, which should drive up investment following less crowding out by public sector, banking sector reforms, and easier money policy,” the report said.

“We expect this, plus easing monetary policy to stimulate GDP growth,” UBS added.

Moreover, the Swiss bank noted that significantly stronger fiscal and current account position raises private saving, which in turn raises loanable funds.

 Bank lending in January this year continued to grow, although at a pace slightly slower at 9.4 percent than the 11.0-percent growth registered in December 2006.

In the near term, UBS foresees investment recovery in the business processing outsource sector and in real estate/construction due to the increasing demand of the overseas Filipino workers for property.

UBS cited that mortgage demand is rising as banks tie up with developers and government sells more state-owned assets. Infrastructure activity is seen to increase on transport links in the first half of the year.

“With private sector credits to GDP of under 30 percent, there is a significant potential for stronger credit and investment growth in our view,” UBS affirmed.

The government, though the Development Budget Coordination Committee, expects GDP to grow within the range of 6.1 percent to 6.7 percent this year due to strong peso and sustained improvement in current account position.