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By Chino S. Leyco, Reporter
The Philippine economy is expected to move at
slower pace in the second quarter of 2008, its lowest growth rate in
more than three years, Development Bank of Singapore (DBS) said
Monday.
In a note to clients, the Singaporean lender
said the country’s gross domestic product (GDP) would continue to
decline for the fourth time since the third quarter of 2007, as the
economy is seen to grow by 4.5 percent in April to June this year.
GDP is the total value of goods and services produced in a country
in a year.
“Our sub-consensus forecast marks the slowest
pace of growth since the first quarter of 2005, and with the
exception of government spending will reflect slower growth or
further contraction across all the GDP expenditure components,”
DBS said.
The bank added that better budget disbursement
of P400 billion between April and June 2008 should be echoed in a
7.5 percent year on year bounce in government spending.
It said, though, that the other remaining
components of domestic demand, such as investment and consumer
spending, are quite likely to slow down because of rising commodity
prices, weaker peso and weakness in the external environment.
As a result of seasonal and currency
adjustments, DBS added, capital-goods imports weakened further in
the second quarter, coupled with the deterioration in sentiment
evident in business surveys.
This weakening, it said, points to GDP spending
easing to 4.9 percent from 6.4 percent in the previous quarter.
DBS added that consumer spending growth probably
edged lower to 5 percent, avoiding a sharper slowdown after public
and private-sector pay increases as well as still-robust remittances
from Filipinos working overseas.
Reflecting the deterioration in both external
and domestic conditions, the bank said exports likely contracted
further by negative 15 percent and imports by negative 9 percent.
“This [contraction] should subtract a net 3.5
percent year on year from the GDP headline,” DBS added.
With a soft GDP report in hand, it said the
Bangko Sentral ng Pilipinas will find it difficult to hike interest
rates aggressively on Thursday.
“To be sure, tightening is no doubt still
needed in the coming months, given that interest rates in
inflation-adjusted terms remain significantly negative,” DBS
added.
The bank, however, said moving in big steps now
risks a further upset of the growth-versus-inflation balance, adding
that the upside risks to inflation are also dissipating,
particularly if oil prices continue to ease.
“A 25 basis points hike looks likely on
Thursday, taking the reverse repo [RRP] and repo rates to 6 percent
and 8 percent, respectively. Thereafter, we continue to expect
another two 25 basis points hikes, taking the RRP to 6.5 percent by
the year-end,” DBS added.
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