Slower growth forecast for Philippines

STANDARD & Poor's (S&P) said the Philippines along with the rest of the Asia-Pacific region will continue to post strong growth this year despite higher inflation.

S&P projects Philippine gross domestic product (GDP) to grow, albeit at a slower pace of 5.5 percent this year, after last year's 34-year record of 7.3 percent.

Agost Benard, S&P economist, said the slower growth this year was due to the absence of additional stimulus measures and the base effect working in the opposite direction.

"Nevertheless, with the expansion of the services and construction sectors, the trend growth rate for the Philippines is likely in the process of rising from the 4.5 percent average seen over the past decade," he said.

S&P said the public-private partnership (PPP) initiative of the Aquino administration will boost basic infrastructure.

"If this drive is successful, it will also benefit the Philippines' growth potential through its direct effect on aggregate demand and by boosting private sector economic activity," Benard said. S&P said the concerns about the quality and durability of the recovery in the industrialized world are compounded by fears of inflation and asset bubbles, excessive capital inflows, and radical capital control measures, which could backfire.

"As elsewhere in Asia, inflationary pressures are mounting, but the [Philippine] central bank is bucking the trend by keeping policy rates steady so far," Benard said.

The Bangko Sentral ng Pilipinas (BSP) is the only central bank in the region that has yet to normalize monetary policy, with its key interest rates at record lows since July 2009. The central bank's steady policy has raised concern that the BSP is behind the curve amid the continuous rise in prices.