Why analysts have high hopes for another stellar economic data from Philippines

GDP growth is pegged at 5.8%.

According to DBS, after a strong run up in the stock market, expectations are high that the economy can continue to outperform after a stellar 2012.

On balance, DBS expects fairly robust GDP growth of 5.8% YoY in 1Q (due on Thursday), moderating from 6.8% in the preceding quarter.

Some softening is probably inevitable given that high frequency data have been reflecting signs of slowing momentum. Notably, industrial production contracted by an average of 2.5% YoY in 1Q, compared to an expansion of 10% in 4Q12.

Here's more from DBS:

Much of this can be attributed to weak external demand for goods exports, which fell by 6.1% YoY. However, weakness in goods exports are likely to be offset by continued strength in services exports.

Measures of domestic demand strength, however, have held up well. In the current low inflation environment, consumer expectations for 1H this year remained at elevated levels.

Moreover, vehicle sales rose by an average of 30.9%, albeit with an upward skew due to base effects. Growth in the coming quarters will depend heavily on how the domestic economy holds up.

The central bank (BSP) has already cut the special deposit rate (SDA) by a cumulative 150bps to 2.00% this year. More recently, BSP further restricted access to the SDAs and we think that a large proportion of funds (PHP 2trn are currently deposit in the SDAs) could be rotated out into other financial instruments including deposits.

Overall, this should have a positive effect on the real economy as banks become more willing and able to provide loans.

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