AFTER the better-than-expected 6.9 percent GDP rate in the first quarter, analysts are more convinced growth in full-year 2016 will outpace that of 2015 at above 6 percent despite an easing in the second half of this year as election spending cools and the new Duterte-led government goes through a learning curve.
The economy looks strongly driven by robust domestic consumption and could also benefit from an expected recovery in global growth, they said.
Some analysts polled by The Manila Times made upward revisions to their outlook for this year after the release of the first-quarter gross domestic product data, though more analysts retained the forecasts that have previously been raised.
Those who retained their existing growth projections were Nomura Global Economics, the London-based research consultancy firm Capital Economics, Ateneo de Manila University, Bank of the Philippine Islands (BPI), and ANZ Research, with forecasts for growth ranging from 6.1 percent to 6.5 percent.
A few, however, did make upward revisions to the outlooks, including banking giant Standard Chartered Bank, Singapore-based bank DBS, and US-based think tank IHS, with their new predictions ranging from 6.0 percent to 6.4 percent.
GDP growth in 2015 stood at 5.9 percent. The government has set a target range of 6.8 percent to 7.8 percent growth for this year.
Nomura and Capital Economics were the most optimistic, both predicting 6.5 percent.
“For 2016, we reiterate our GDP growth forecast of 6.5 percent from 5.9 percent in 2015. Our forecast implies a further pickup in the second quarter, likely to above 7 percent growth, before moderating slightly as the impact of election-related spending fades,” Nomura said in a research note.
Its baseline view remains that presumptive President Rodrigo Duterte’s policy approach will be pragmatic and unlikely to reverse the reforms implemented by the outgoing Aquino administration.
Capital Economics’ Gareth Leather said while the think tank is keeping its growth forecasts for the next couple of years unchanged at 6.5 percent, the risks for next year, at least, are now to the downside.
He said that in the short term, the economy looks well placed to continue growing at a strong pace on robust consumption, solid fiscal position and the rebound in exports that should benefit from an expected pick-up in global economic growth.
Standard Chartered economist Jeff Ng expects GDP growth of 6.4 percent in 2016, an upward adjustment from his initial forecast of 5.7 percent, “as downside risks to growth momentum wane.”
“The Philippines may achieve its 6.8 percent to 7.8 percent growth target this year if external tailwinds pick up,” he said.
Other analysts also raised their projections, but noted that some slackening of the growth pace was still possible.
DBS now expects 2016 GDP growth to be around 6.3 percent, up from its 6.1 percent previous projection.
“Given that there has been a frontloading of investment ahead of the May elections, however, we reckon that there will be a moderation in growth momentum going forward,” it said, but noted that as far as the region is concerned, the Philippines remains one of the fastest growing economies, along with India and China.
IHS Asia-Pacific chief economist Rajiv Biswas said with the result of the very strong first-quarter GDP number, the Philippine economic growth is expected to grow in the 6.0 percent to 6.3 percent range.
While underlying GDP growth is expected to be strong during the remaining three quarters of 2016, helped by buoyant private consumption expenditure, there will be some payback during second quarter for the accelerated public spending in the previous three-month period, he said.
“The weakness of manufacturing exports has been evident across East Asia during the second half of 2015 and the first quarter of 2016, reflecting the impact of China’s economic slowdown on the East Asian manufacturing supply chain. Therefore domestic demand will be the key growth engine for the Philippines economy during 2016,” he explained.
Overall, Biswas said the Philippines is expected to be one of the fastest growing major emerging market economies in Asia during 2016, continuing the strong performance achieved during the Aquino presidency, when average annual GDP growth was around 6.2 percent per year.
Learning curve for Duterte govt
Ateneo de Manila University economist Alvin Ang said his team is holding its 6.4-percent growth outlook, “considering possible adjustments due to a learning curve for the new administration.”
BPI associate analyst Nicholas Antonio Mapa said the bank is penciling in a 6.2 percent expansion for the full year, “contingent on the ability of the new administration to hit the ground running.”
Mapa said the strong start to 2016 will help offset a possible slowdown in the second half of the year as government spending is expected to slow, as it usually does during a transition year.
“This, of course, is to be expected as cabinet members come in and learn the nuances of their posts and hire staff to fill vacancies,” Mapa explained.
“Should the new admin learn their trade quickly and disburse the remaining budget, we could see GDP numbers north of our initial projection,” he added.
Headwinds to the growth target of the government are the La Niña weather conditions in the last six months of 2016, potential rate hikes by the US Fed and the resulting financial stress and a sustained rise in oil prices, Mapa said.
“Duterte will need to hit the ground running to ensure we can sustain this current growth momentum.Mayor Duterte has espoused continuity and his decision to adopt Aquino’s previous economic plan is welcome. However, we are still waiting to see how his incoming cabinet will implement the agenda,” he pointed out.
Offering a least optimistic view is ANZ Research economist for Asean and Pacific Eugenia Victorino, who still expects 2016 GDP growth at 6.1 percent and sees the economy losing some momentum in the second half of the year.
“Election spending will continue to provide a growth buffer in the second quarter; however, the dual effects of the agricultural slowdown and the frontloading of expenditures into first-half 2016 present the risk of a loss of growth momentum in the second half of the year,” she said.
This makes Duterte’s plans to pursue a genuine agricultural development strategy the crucial macroeconomic factor to watch, she said.
“We do not see an increasingly uneven sectoral pattern of growth having any immediate monetary policy implications and maintain our view that the BSP is on hold,” she added.