BMI, Deutsche Bank cut PH GDP forecast


BMI Research and Deutsche Bank have joined other private institutions in scaling back the forecast for the Philippine economy for full-year 2015 as they take into account the impact of external headwinds and the El Niño phenomenon on gross domestic product (GDP).

In separate research notes, BMI trimmed its Philippines growth estimate to 5.7 percent from 6 percent, while Deutsche Bank marked down its previous forecast of 6.5 percent to 6 percent.

The revised forecasts were below the 6.1 percent GDP growth last year and the 7 percent to 8 percent growth assumption by the government for 2015.

“We are slightly downgrading our real GDP growth forecast for 2015 to 5.7 percent from 6 percent previously, owing to growing external headwinds,” BMI said.

While outlook for the Philippine economy is largely positive, The Fitch Group think tank unit noted the lackluster economic conditions in Asia is a key risk to its constructive stance.

The economic conditions in the region, particularly in Japan and China, which are the first and third largest export destinations for the Philippines, respectively, will undermine Philippine shipments, BMI said.

“Philippine exports have been poor in 2015, posting in the red for six out of the first seven months of the year,” it said.

Sound footing
Nevertheless, amid the external headwinds currently undermining export performance, BMI said the Philippine economy should remain on a sound footing over the coming quarters.

In particular, the think tank said the resilience of the domestic economy and the potential uptick in fiscal spending as the election season approaches will help cushion the economy against the ongoing slide in exports, BMI noted.

“A continued pick-up in private sector investment activity looks particularly compelling over the coming quarters,” it said, noting that the growth of gross capital formation has been picking up in recent months which suggests that private domestic investors are picking up the slack.

BMI cited the latest data from the Philippine Statistics Authority (PSA) which showed that gross capital formation accelerated to 11.6 percent year-on-year in the first quarter and 17.4 percent in the second quarter of 2015 from 3.0 percent in the fourth quarter of 2014.

At the same time, private consumption should remain resilient on the back of strong remittance inflows, BMI said.

“In addition, fiscal spending looks set to increase, as elections are coming soon and as a P3. trillion budget for 2016 has been proposed, signaling government intentions to boost expenditure over the coming quarters,” it said.

BMI emphasized that an acceleration of infrastructure projects under the public-private partnership scheme as the administration nears the end of its six-year term in 2016 should provide further impetus for spending growth.

“While fiscal spending has been lackluster since the start of the year, there are already incipient signs of an uptick in government consumption,” the think tank said.

El Niño
For its part, Deutsche Bank said it latest forecast rests mainly on the back of drastically lower domestic output from the impact of a strong El Niño.

“The potentially severe dry weather could be another drag to already weak exports, aside from the headwinds due to China’s slowdown and overall weak global trade,” it said.

The bank pointed out, however, that the economy continues to have positive growth prospects just when its Asian neighbors are at risk of slowing down.

In particular, Deutsche Bank noted the economy has grown at least 5 percent year-on-year for the past 14 quarters, driven by robust domestic demand despite the latest developments in exports.

“Private consumption and investments have been strong, fueled by at least $2 billion of remittances every month, better job prospects from the services sector, and more recently, lower commodity prices,” it said.

Above all this, the Philippines’ challenge now is for the government to spend according to the annual budget, especially after the underspending in the past two years, it said.

“A change in leadership is forthcoming, with elections taking place in May 2016. And this is likely to pressure the incumbent to push for spending, especially towards infrastructure (where there is a substantial deficit), if he wants to leave a favorable mark on the country,” it added.

The bank said private-partnership programs are gradually taking off while government disbursements have started to gain pace growing 18 percent in June and 25 percent in July.

“These developments, in our view, are likely to help sustain growth of at least 6 percent this year and next,” it said.

Other forecasts revised
Earlier, the International Monetary Fund (IMF) also warned of revising downward its growth outlook of 6.2 percent for the country to reflect the government’s adjustment of the first-quarter GDP performance.

Moody’s Investors Service has also cut its growth forecast for the Philippines to 5.7 percent this year from a previous projection of 6.0 percent citing slow exports, government underspending and the impact of El Niño on agriculture.

Standard & Poor’s Ratings Services (S&P) trimmed its growth forecast to 5.6 percent from an earlier 6.0 percent, taking into account higher external volatility.

Five of the seven analysts who had commented on the second quarter GDP figures also released lower forecast figures for 2015, citing weak exports and uneven global growth as risks.

Analysts from the Bank of the Philippine Islands, Metropolitan Bank and Trust Co. (Metrobank) Research, Singapore’s DBS Bank, London-based research consultancy Capital Economics, and UK-based investment bank Barclays now expect the GDP to grow between 5.5 percent and 6.2 percent.

Standard Chartered Bank, on the other hand, chose to keep its 2015 GDP outlook unchanged at 6 percent.


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