PH economy could overheat - Deutsche Bank

Posted at 01/10/13 3:16 PM

MANILA, Philippines - Deutsche Bank warns the Philippine economy could overheat, saying if growth stays over 6% inflation could accelerate and form a bubble that could burst.

"The economy is growing faster than its long run growth rate, putting the levels of GDP above the full employment level. Growth has been above our estimate of potential for most of the last three years," Michael Spencer, Deutsche Bank chief economist for Asia Pacific, said.

Spencer said the Philippines may grow by 5.5% this year, slower than the 6.3 % estimate for 2012.

Last year, economic growth was 7.1% in the third quarter and 6.5% in the first nine months.

Deutsche Bank says this is "too high" and the Philippines can only sustain an average of just 4 percent.

Economists say an economy overheats when inflows, such as remittances and foreign investment in stocks and bonds, exceed an economy's ability to absorb them, causing consumer and asset price inflation. These could form a bubble that bursts.

"If inflation rises, as we forecast, real rates will fall and credit growth -already high will rise. Exchange rate appreciation alone is unlikely to be enough to bring inflation down. Interest rates need to rise," Spencer added. - With ANC