The Philippine economy will likely to grow 6 to 7 percent this year (2012), fed by strong domestic demand as the government shoulders an additional P180 billion in deficit for the second half, according to a report by First Metro Investments Corp. (FMIC) and University of Asia and the Pacific (UA&P)
This is higher than the original forecast of 5 percent to 6 percent, according to the report "Market Call."
Quarterly, the gross domestic product (GDP) may expand by 6.5 percent to 7 percent in the June-to-September period, outperforming the first quarter output growth of 6.4 percent.
A depreciation of peso against dollar would likely boost spending among OFW dependents, the report said, adding that this would support additional government spending.
"For the second half of the year, while the external sector may be weaker due to the lingering Eurozone recession, domestic demand should be stronger since the national government will likely incur an additional P180-billion deficit for the semester, while a slight peso depreciation will spur OFW-dependent spending," FMIC and UA&P said.
The first half budget deficit reached P34.482 billion – still below the P109.341-billion ceiling on program.
Also helping boost domestic demand is the 25-basis-point policy rate cut imposed by the Bangko Sentral ng Pilipinas that brought overnight lending and borrowing rates to record lows.
FMIC and UA&P see the agriculture sector expanding 2.5 percent in the second quarter from 1 percent in the first quarter, enhanced by the expansion in the manufacturing and construction sectors.
On the fiscal side, the Market Call noted slow government spending is less of an issue now compared to last year when the economy grew by only 3.7 percent from 7.6 percent in 2010.
The budget deficit ceiling is P279 billion or 2.6 percent of GDP for 2012, from the actual P197-billion shortfall recorded last year.
GMA News
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