Central bank of the Republic of Philippines' Bangko Sentral ng Pilipinas' latest Q3 survey, conducted with 17 private organizations, signified that average inflation predictions for 2006 & 2007 were considerably lowered due to declining oil prices & strengthening of peso.
Average inflation prediction for this year (2006) declined from 6.9 % in Q2 to 6.6 %, higher than 4-5 % targeted range from govt. For the next year, average prediction also declined to 5.3 % from 5.7 % in Q2. Industry experts have held a strengthening peso and dropping oil prices responsible for declining inflation forecasts, as lower oil prices directly benefit consumers. Peso reached new heights of 49.76, in four years, against a dollar on October 27 2006, due to high foreign inflows.
"Peso can further strengthen but the amount of growth will depend on interest rates set by BSP," said an analyst at RNCOS.
US topped the charts as the leading investors for FDI (foreign direct investment) in Philippines for the 1st half of 2006 pouring in US $ 123.17 Million from just US $ 5.43 Million annually. Net FDI totaled to US $ 996 Million in first half, an increase of 50 % from US $ 675 Million in 2005.
Agriculture sector's positive outlook is likely to limit food inflation. However, political stability & possibility of few wage revisions are potential threats to inflation.
Average prediction for real GDP (Gross Domestic Product) growth for this year increased 5.4 %, higher than Q2 survey's prediction of 5.3 % but remained still lower than 5.5-6.1 % target range set by govt. As per analysts, developments in economic reforms in the country will improve infrastructure investments. Services sector is also likely to grow in 2006. For 2007, GDP is estimated to reach 5.4 % higher than Q2 survey forecast of 5.2 %.
However, BSP agreed to the risk in output growth, noting the possibility of a rise in interest rates for developed economies was to some extent, receding in Q2. Robust activities in US & stable recovery in Japan & Europe may again require tightening of interest rates at a later point, by respective central banks.
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