• Home
• Business
• National
• Metro
• Opinion
• Sports
• Entertainment
• Living

The global financial firm UBS has upgraded its growth forecasts of Philippines, Indonesia and Thailand for 2010 due to "pent-up demand, the inventory cycle, fiscal and monetary policy."

UBS, in its Asean: 2011 Forecasts, hiked the Philippines gross domestic product forecast to 5 percent in 2010 from the earlier 4.6 percent. In 2011, RP would have 4.6 percent GDP. But it maintained its GDP forecast of 1.3 percent for 2009.

Indonesia was forecast to post 6 percent GDP in 2010 from earlier 5.3 percent. It would also have a GDP of 6 percent in 2011, and 4.5 percent in 2009 from earlier forecast of 4 percent. Thailand would have a 6 percent GDP in 2010 from the earlier forecast of 5 percent, and a 5 percent growth in 2011. In 2009, it would now have a negative 2.9 percent growth from the earlier negative 3 percent growth.

UBS has earlier revised its forecast for Singapore and Malaysia.

The report, written by UBS Economist Edward Teather, said that growth momentum would be "slowing towards more sustainable rates in the second half of 2010 to 2011."

In the Asean-5 forecast, the report said Asean annual real GDP growth rates will show a marked recovery from the weakness in 2009 due to "loose monetary and fiscal policy settings in 2009 along with the inventory cycle and pent-up demand in the more open economies."

The report added that the growth momentum would fade in the second half of 2010 leading to a slower 2011 growth on average.

It noted that short term money interest rates have fallen more sharply in Singapore, Thailand and Philippines, connoting more easing in monetary conditions.

While budget deficits would have expanded significantly in Malaysia, Singapore and Thailand, signaling easier fiscal policy settings.

"With policy stimulus lifting confidence through improved cash flow and income expectations, a faster snap back in economic activity where it was reduced most is underway (in Indonesia, Philippines, Malaysia, Singapore and Thailand)."

There would be stronger quarter-on-quarter growth for Q3 in the Philippines, Singapore, Malaysia and Thailand just like what it recorded in Q2, UBS said.

UBS said that year-on-year inflation rates are in the process of bottoming out in Asean, and the rate of inflation in 2010 would depend more on capacity constraints, food and energy price trends and monetary policy settings than base effects.

It noted that excess capacity in globally manufactured goods markets would have a disinflationary effect in Singapore, Malaysia and Thailand. But "in Indonesia, and to a lesser extent the Philippines…the importance of locally produced goods and relatively closed economies mean domestic capacity constraints to a greater extent." UBS said that underlying rates of consumer price index (CPI) in Asean would gradually go back to their averages in the decade.

But "normal" inflation would be elevated in the Philippines and Indonesia due to tight capacity constraints and double-digit broad money growth.

UBS said that high inflation would depress the Indonesia rupiah on a nominal trade-weighted basis and limit Philippine peso appreciation. But "once domestic price changes are accounted for," the peso and rupiah would appreciate in real terms in 2011.

Peso would appreciate due to remittance flow-driven current account surplus, and rupiah due to expectations of strong domestic growth.

In the Philippines, UBS noted that the flooding in Metro Manila due to typhoon Ondoy would have a relatively modest impact on Q4 2009 growth "with an offset in Q1 2010 as rebuilding progresses."

It added that sensitivity of inflation to commodity prices in Philippines, Malaysia and Indonesia is high.

• Business Insight
• Business