British banking giant HSBC adjusted its growth forecast for the Philippine gross domestic product (GDP) this year to 1.8 percent from a previous estimate of one percent.

Also revised upwards are growth forecasts for 2010 at 4.3 percent to 4.7 percent, according to HSBC Philippines Treasurer Jose Arnulfo Veloso, who said election spending will increase economic activities. For example, it is assumed that each of the presidential candidates will spend at least P5 billion each to fund campaigns.

Veloso told reporters Wednesday that since the economy is fueled by consumption spending more than state expenditures, GDP growth will get a boost with election-related spending.

Aside from politicians and their supporters money, foreign exchange inflows especially remittances will continue to spur consumer spending.
The central bank expects remittances to hit $17.1 billion this year and $18.1 billion in 2010.

Veloso said strong inflows will support the exchange rate and lend stability to the peso around the P46 level next month. Next year, he said the peso will likely range around the P43 level.

As for inflation, the HSBC official said this could go up because of a rise in GDP next year.

Veloso expects inflation to settle at 3.2 percent this year, which is almost the same level predicted by the Bangko Sentral ng Pilipinas.

He pointed out that headline inflation has been rising but he does not see the BSP adjusting rates higher without any clear signal from its US counterpart, the Fed.

For 2010, BSP forecasts a higher inflation of 4.02 percent from an average of 3.28 percent this year, citing base effects as reason.

BSP said the slightly higher inflation rate is because of the projected improvement in the economy to push demand. Other reasons are possible increases in utility rates and the El Niño phenomenon that could bring down agricultural production and its impact on higher prices.