Banks bullish about economic growth


GDP seen to expand 6.2-6.9% in 2016
Most private banks and think tanks have revised upward their full-year growth estimates for the Philippine economy; sharing the government’s view that growth rate this year will hit the target of 6-7 percent.

Following the release late last week of data showing the 7-percent expansion in gross domestic product (GDP) in the second quarter, the country’s chief economic planner, the Socioeconomic Planning Secretary Ernesto Pernia, said that the second-quarter result supports the probability of attaining the revised growth projection for the year.

The second quarter result has led seven financial institutions to review their 2016 outlook and adjust their projections upward.

For example, Fitch-owned think tank BMI Research upgraded its forecast to 6.9 percent from 6 percent; the Japanese investment bank Nomura and the London-based consultancy firm, Capital Economics raised their forecasts to 6.7 percent (Nomura revising upward from 6.3 percent and Capital Economics from 6.5 percent); the Singaporean bank DBS revised upward from 6.3 percent to 6.6 percent; the Swiss baking giant Credit Suisse raised its forecast from 6.2 percent to 6.5 percent; and the global financial services firm J.P. Morgan revised upward to 6.4 percent.

Three others—HSBC, Metrobank Research, and the Bank of the Philippine Islands—stayed with their previous projections. HSBC and Metrobank kept their forecasts at 6.3 percent and BPI at 6.2 percent.

BMI Research said it expects the “outperformance to continue over the coming quarters on the back of a solid government policy agenda, and ongoing booms in the construction and services sectors,” while Nomura said its revision is “supported by the solid first-half growth average of 6.9 percent, an impact from the Brexit vote that was more contained than our initial expectations and, more importantly, by the Duterte administration’s commitment to policy continuity in implementing economic reforms and building infrastructure.”

These factors, it added, “should keep GDP growth robust in the second-half, averaging 6.5 percent even as the election-related boost to growth in the first half fades.”

According to Capital Economics, the economy in the short-term, looks well placed to continue growing at a strong pace. “With inflation benign, the central bank looks set to keep interest rates low which should support investment,” it stated. Besides, the recent improvements in the country’s business environment, it added, should help too.

“Consumption should remain buoyant, supported by rapid wage growth and healthy household finances. A strong fiscal position means there is scope for the government to boost spending. Duterte has already said he intends to run a looser fiscal policy than his predecessor,” it added.

DBS noted that the economy “firing on all cylinders” was obvious enough. It also said: “The one figure that may continue to grab the headlines is the pace of investment growth in the economy.”

Credit Suisse, explaining the substance of its forecast does not change, said: “We continue to see some slowdown in second-half 2016, reflecting fading out of election boost, with the moderation likely manageable.” Nevertheless, support to growth, it noted, is likely to be driven by resilience in private consumption, boosted by an increase in government salaries, a tighter labor market, and lagged impact of low oil and rice prices.

J.P. Morgan expects fiscal and infrastructure spending to step up materially as President Rodrigo Duterte has voiced the administration’s desire to accelerate infrastructure spending which likely will lift domestic investment.

“Our growth narrative of the Philippine economy remains broadly unchanged; that is, domestic demand will likely remain robust due to investment growth which could further lower external balances,” it stated.

Among those which kept their forecast unchanged, HSBC was of the view that the election impact that helped growth in the first half of the year would fade out in the second-half, and base effects will turn less supportive. However, it added, the fundamental drivers of growth will remain intact.

Metrobank Research too felt that as the impact of election spending fades, the growth in the second half could be lower. However, it said: “Consumption spending will remain robust amid the still soft commodity prices, low interest rates, and solid remittance inflows,” it said.

BPI, which noted that household consumption and consumption-related investment are seen to carry the load, said, the “wild card will be the ability of government to enact its very aggressive spending program as government under-spend has been the missing link to our recent growth spurt.” But it noted that the recent struggles of exports, given tepid external demand, may soon reverse as six straight months of inventory build-up suggests an eventual improvement in the trade deficit.


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