Goldman Sachs Sees Good Economy for the Philippines

Goldman Sachs sees continued expansion of money sent home by Overseas Filipinos (OFs), which, in turn, is expected to boost strong growth of the domestic economy this year.

In a recent study, the investment bank said it remains confident for a 7.4 percent full year growth, as measured by gross domestic product (GDP), for the country this year as against the consensus of 6.3 percent.

It, however, noted that quarter-on-quarter the growth is expected to slow down to 2.5 percent for the third and the fourth quarter compared to the 5.3 percent in the second quarter this year “as the global economic momentum softens in the second half of 2010.”

“Going into 2011, our GDP growth forecast stands at 5 percent year-on-year,” it said.

The domestic economy churned in a 7.9 percent growth in the first half this year from 7.8 percent in the first quarter and 7.9 percent the following three months.

Relatively, one of the major drivers of the domestic economy, the remittances, is eyed to grow by 10 percent this year, higher than central bank’s eight percent projection.

Last July alone, remittance inflows grew by 8.2 percent, a slowdown from the previous month’s 8.3 percent but is already ahead of the full-year growth forecast.

“We continue to expect overseas remittances to grow by a robust 10 percent year-on-year for the full year of 2010,” it said.

Goldman Sachs said the Philippines’ second quarter output “confirms that the recovery process is firmly on track, and we expect it to continue to get support from the two engines of flows—stable remittances and growing IT service exports.”

“We expect this to continue to provide steady support to private consumption, the balance of payments, GDP growth and the Philippine peso. Our 3, 6 and 12-month forecasts for USD/PHP are 43, 42 and 41, respectively,” it added.

The local unit continues to strengthen against the US dollar as risk appetite to emerging economies like the Philippines is on the uptrend similar to that before the recent global economic and financial turmoil.

In the first half this year, the peso appreciated by 5.4 percent against the US dollar after averaging at 45.77 to a dollar from January to June this year, better than the 47.8 to a dollar it registered same period last year.

Last September 22, it closed at more than two-year high of 43.88 to a dollar on account of US Federal Reserve’s decision to maintain to near-zero level its rates.

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