MANILA - The President may have a point in suggesting to the country’s economic managers to review 2010 targets, since there is a possibility developing countries in Asia, excluding China and India, may grow as much as 5 percent next year.

This was the conclusion of a Washington-based think tank, the Peterson Institute for International Economics (PIIE), from a study by its senior fellow Michael Mussa, the economist who projected a V-shaped recovery in April 2009.

Mussa said emerging economies in Asia, including the Philippines, were able to regain their footing after posting better gross domestic product (GDP) growth in the second quarter. The Philippines posted a 0.4-percent growth in the first quarter followed by 1.5 percent in the second quarter.

Mrs. Arroyo, according to National Economic and Development Authority Acting Director General Augusto Santos, had found the initial growth range targeted for 2010 to be “very conservative,” considering the huge political spending that may help boost overall expansion during an election year.

Another sign of rising growth is the remittances of Filipinos abroad that account for more than 10 percent of domestic GDP, which is now expected to rise by up to 8 percent this year.

This has prompted the DBS Group—Southeast Asia’s largest bank—to raise its economic-growth forecast for the country this year to 1.6 percent from 0.5 percent.

“The outlook is less uncertain than three months ago. The economy avoided recession, remittances have not collapsed and political instability has diminished,” the Singapore-based lender said in its latest quarterly report on the global economic outlook.

In step with the prediction of Mussa, the bank said the Philippine economy is seen growing faster next year by 4.6 percent, with inflation likely to remain manageable at 3.1 percent this year and 3.3 percent in 2010.

The bank thus expects the Bangko Sentral ng Pilipinas (BSP) to keep its key interest rates steady at a low 4 percent for overnight borrowing and 6 percent for overnight lending until probably the middle of next year.

There is a possibility, however, that the BSP may tighten its policy stance through removal of accommodation in non-interest rate measures ahead of rate cuts, according to DBS economist Lim Su Sian.

The better than expected growth in the second quarter prompted the President to ask the Development Budget Coordinating Committee (DBCC) to review its 2010 forecast that has been pegged at 2.6 percent to 3.6 percent. The growth targets for 2009 [0.8 percent to 1.8 percent] have not been asked to be revised.

The BSP had also said the $700-million surplus in the balance of payments (BOP) seen this year was likely to be surpassed given the continued increase in remittances. Data released on Thursday showed a BOP surplus of $53 million in August, boosting expectations the full-year surplus would be more than $1 billion.

This followed a BSP report on Tuesday that remittances, which have been a key booster of consumer spending, was the highest this year in July with $1.5 billion to bring the 7-month total to nearly $10 billion.

Lim said a recovery in remittances, together with relatively benign inflation and a pay hike for government workers, should help offset some of the downward pressure that the weakening labor market is set to place on all-important consumer spending.

“Elsewhere in emerging Asia, many economies including Hong Kong, Malaysia, the Philippines, Singapore, South Korea, Taiwan, and Thailand snapped back to sharply positive growth in the second quarter after large output declines in the preceding 2 quarters,” said Mussa in his “Global Economic Prospects as of September 2009: Onward to Global Recovery” study.

“Year-over-year GDP growth for emerging Asia excluding China and India but including Hong Kong, Singapore, South Korea, and Taiwan is likely to be slightly negative this year but followed by growth of 5 percent or better next year,” he added.

Mussa pointed to several reasons for these positive growth expectations. One of the reasons is the recovery in major drivers of global economic growth such as China, India, and the United States, which have been instrumental in the positive contribution to demand for goods and services of other countries.

Lim is again in agreement except for a significant exception. “Since May the country has seen export momentum pick up significantly. Interestingly, our estimates suggest that this acceleration has not been driven by China, but rather the US and Japan, its 2 largest export markets.”

Mussa has said that China’s economy recovered mainly from the growth of its domestic demand. Its net exports had a significant negative contribution to the growth in GDP in the first half of 2009 while India had slowed, not negative, growth in 2008 and continued to grow in 2009. He said the growth in India was sustained also by domestic demand and further fiscal stimulus after its election.

Increased demand after the crisis bottomed out in the middle of 2009 contributing to the growth in American GDP. Mussa said there is an expected rise in real gross private domestic investment that is expected to provide a significant upward push to the US’ real GDP growth.

Here Lim disagreed. Given that domestic demand in the US and Japan are likely to remain more constrained than in Asia due to significantly larger losses in jobs and wages, Lim said these factors do not bode well for Philippine exports.

However, Lim noted that in July, the US semiconductor book-to-bill ratio finally printed above par at 1.06, after 2 and a half years of languishing below 1.0, indicating that demand for electronics was finally out-stripping supply, a good sign for the Philippines.

Philippines exports had contracted 41 percent in January but has slowly inched up and by July has reduced the export shrinkage to 25.4 percent for an average 7-month decline of 31.7 percent this year.

Mussa has been a senior fellow of the PIIE, a private, nonprofit, nonpartisan research institution devoted to the study of international economic policy, since 2001.

He also served as economic counselor and director of the research department of the International Monetary Fund from 1991-2001, advising management and the executive board on broad issues in economic policy and providing analyses of developments in the world economy. With Erik dela Cruz