CREDIT  SUISSE  UPS  RP  2005  GROWTH  FORECAST

MANILA, September 30 2005
 (STAR) By Donnabelle L. Gatdula - Credit Suisse First Boston (CSFB), an international investment firm, has raised its 2005 gross domestic product (GDP) growth forecast for the Philippines from the original 4.4 percent to 4.7 percent.

"We are raising our 2005 GDP forecast to 4.7 percent from 4.4 percent due to a stronger than anticipated growth in the second quarter of 2005 and a resilient private consumption growth in the second half of 2005," CSFB said in its latest emerging markets economics research.

The investment firm said the country’s GDP growth accelerated to 4.8 percent in the second quarter of 2005 from a 4.6 percent growth in the first quarter and exceeded the consensus forecast of 4.5 percent due to robust private and public consumption spending.

"Robust private and public consumption spending were the key drivers of second quarter growth. Looking forward, high oil prices are likely to have a limited impact on domestic demand conditions for the remainder of 2005 since consumer spending on fuel, light, and power accounts for only four percent of household income," the report said.

CSFB said that dependency on oil as a source of energy has fallen to 35 percent of total energy usage in 2004 from a high of 46 percent in 2000.

On the inflation front, CSFB said the Philippines is very different from Indonesia and Thailand as fuel prices in those countries have been fully subsidized.

"The economy has been adjusting continuously to rising oil prices, as opposed to Indonesia, whose adjustment process started in second quarter 2005 when the first round of fuel subsidy cuts took place, and Thailand, which started removing fuel subsidies in second quarter of 2004," it said.

The firm said it believed inflation rate would go down towards the end of the year.

"With the lower- than- expected pass through from rising oil prices to core inflation in the first half of 2005, we are cutting out 2005 average CPI inflation forecast to eight percent from 8.8 percent," it said.

CSFB also believed that the Bangko Sentral ng Pilipinas (BSP) will further increase its overnight rates to 7.5 percent this year. Last week, the Bangko Sentral ng Pilipinas (BSP) raised its key policy rates by 25 basis points to 7.25 percent.

"With price pressures in the transportation and food sectors building up due to rising fuel prices and the real interest rate differential with the US currently hovering around zero, we maintain our forecast of a 50 basis points hike in the overnight borrowing rate to 7.5 percent by end-2005," it added.

The firm is also anticipating that the crucial expanded value-added tax (EVAT) would be implemented by mid-October 2005. EVAT was supposed to be implemented in July this year but the Supreme Court issued a restraining order. SC is reportedly going to resolve the EVAT case next month.

"With the passage of the VAT bill, we foresee an additional P13.5 billion in revenues in 2005 and P80 billion to P100 billion in 2006,"it said.


Chief News Editor: Sol Jose Vanzi

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