(STAR) By Des Ferriols - The Philippine economy is expected to grow at a faster rate than originally projected this year due to robust domestic demand, monetary officials said yesterday.

Central bank officials said it was possible for the gross domestic product (GDP) to surpass the projected 6.1- to 6.7- percent growth rate this year, leading analysts to believe this would create room for a possible rate cut by the end of the year.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. told reporters that the official growth projection was attainable based on the economic performance in the first semester when GDP grew by 7.3 percent.

Tetangco said this momentum would make it possible for the actual GDP for the year to grow even faster than anticipated despite external market disruptions, the slowdown in exports and high oil prices.

Tetangco’s pronouncements were supported by market players who said domestic demand was taking up the slack left by softer exports to strategic but also problematic markets such as the US.

Standard Chartered Bank announced yesterday that it has revised its GDP forecasts for the Philippines, upgrading its original 5.1-percent projection to a “solid 6.5 percent”.

SBC economist Frances Cheung said the bank also upgraded its GDP growth projection for 2008 from 4.5 percent to 5.3 percent on the back of stronger domestic demand including consumer spending, government spending and investment.

“Exports have slowed as we have expected, and in line with our full year exports growth forecast of 6.8 percent,” Cheung pointed out.

Philippine trade links with the US have become tenuous and this would mitigate the impact of a slowdown in the US economy since links were stronger with many other Asian economies.

But Cheung said remittances from overseas Filipinos would continue to support spending. She said remittances have been volatile but still rose by a decent 18 percent year-on-year in the first half of the year.

“We see remittances rise by 10-15 percent for the whole year, good enough to support spending,” she said.

Given the broadly benign inflation, Cheung said the BSP could cut its rates by end 2007 once inflation eases further with the fading of near-term upside risks.

Monetary officials remained non-committal about the direction of the Monetary Board (MB) but nevertheless ruled out any policy rate cut, at least while the market was jittery.

BSP deputy governor Diwa Guinigundo said lowering the BSP’s policy rates would release liquidity into the system and trigger more turbulence.

According to Cheung, on the other hand, there remain key risks that need to be monitored, particularly given the lingering concerns over the US subprime and credit issues which might trigger further decline in the risk appetite of investors.

“This in turn may trigger massive capital outflows from emerging markets, including the Philippines,” Cheung said.

Cheung said she also expects export growth to stay soft and uneven, with shipments to the US weakening while exports to China and Hong Kong picking up.

“This trend is likely to continue in the near future, especially if the latest market turmoil dent US consumer spending,” she said.

But Cheung said domestic demand would grow in significance as private consumption, government spending and domestic investment all rose strongly in the second quarter of 2007.

Chief News Editor: Sol Jose Vanzi

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