MANILA - Investment bank Goldman Sachs has raised its growth forecasts for the Philippines this year and next, citing the relatively stable growth in remittances, and increased personal consumption and government spending.

Goldman Sachs revised its growth forecast for the local economy to 1.6% from the earlier 0.5% for 2009, and 4.2% from 3.7% for 2010.

"Overseas remittances have been fairly stable through the crisis and of late rebounded quickly, partly due to a broad distribution of Filipino workers across sectors and regions," it said in a statement.

Accounting for about 10% of domestic output, remittances are a major indicator of where the local economy is heading. They drive consumption, which fuels the engine of the economy usually more than government spending does.

In July, remittances grew by a surprising 9.3% to $1.494 billion. This brought total inflows to $9.973 billion for the first 7 months of the year, a 3.8% rise year-on-year.

Goldman Sachs said it expects money sent home by Filipinos abroad to grow 11% in 2009 and 12% in 2010, on the back of increasing oil prices, which would support recovery in the Middle East.

Meanwhile, the investment bank said the upcoming elections would give government expenditures a boost.

"The election cycle coinciding with the crisis has sped up the implementation of the fiscal stimulus," it said.

With the continued implementation of the fiscal stimulus, Goldman Sachs estimates the Philippine budget deficit to reach 3.5% of gross domestic product (GDP) this year from only 0.9% of GDP in 2008.

"(This is) manageable given that the government has successfully consolidated the fiscal deficit in the recent past, and has a consolidation plan for balancing the budget in 2013."

The government had set a 0.8-1.8% GDP growth target for 2009, but is mulling to revise this following the stronger-than-expected growth in the second quarter of the year.

The country's budget deficit, on the other hand, is projected to reach P250 billion or 3.2% of GDP.