Philippines to hit 5.6% full-year growth for 2012

Growth may ease in H2 but headline data still gives a glimpse of positive results.

According to DBS, 3Q GDP numbers will be out on Friday and the question lies with whether growth will still surprise on the upside.

Here's more from DBS:

In 1H, growth proved to be very resilient, averaging 6.1% YoY. Growth is expected to ease in 2H, but judging by the high frequency data, headline growth could still hit a robust 5.7% YoY in 3Q.

We maintain our forecast that full-year growth will reach 5.6% and 5.0% for 2012 and 2013 respectively.

The economy has navigated external headwinds very well, in stark contrast to the other markets in the region. In fact, exports are up by an average of 6.6% YoY in 3Q.

Much of this can be attributed to the more diversified manufacturing export base. While electronics exports have remained lackluster, non-electronics components have generally put in a stellar (albeit volatile) performance.

Over the past six months, the value of non-electronics manufactures exports actually exceeded electronics manufactures for four months, a phenomenon that was not seen before.

On the supply side, the industrial production index eked out slight gains. Of particular note is the sustained elevated level of production for transport equipment since April, which contributed to the non-electronics export spike.

The non-electronics component will be critical in propping growth in the coming quarters.

The domestic economy is expected to register steady growth amid benign inflation rates. Loan growth numbers have stabilized at around 12-15% YoY in 3Q.

Household consumption loans rose by an average of 15.3% reflecting the high level of consumer confidence (currently at the highest level in seven quarters). With the policy rate pushed to an all-time low of 3.50%, loan growth will be well supported.

Remittances have weakened somewhat, and growth in the first three quarters of the year reached only 5% compared to the same period in 2011.

This is to be expected considering significant headwinds in the major markets that overseas Filipino workers are deployed. Government spending has accelerated.

Government expenditure rose by 15.7% YoY in 3Q and this will be supportive of the domestic economy. Elevated business sentiment as reflected by the central bank's business expectation survey) and sustained imports of capital goods both point to a steady level of investment in 3Q.

However, some moderation in investment growth is likely after the 8.5% YoY surge in 2Q as favorable base effects fade.

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