Barclays, DBS see end-2015 rebound in remittances, consumption
Weak export demand continues to pose risks to the Philippine economy but the country’s strong current account position will provide enough support to sustain growth, two multinational banks said.
UK-based Barclays, in a quarterly research note, said the country’s growth momentum was holding up but would likely moderate given the El Niño weather phenomenon, slow public spending and weakening overseas Filipino worker remittances.
Singapore’s DBS, meanwhile, said merchandise exports could contract much more than expected. It was more upbeat on the economy, noting that the exports fall could be traced to base effects.
Both multilateral banks were optimistic of a yearend rebound, particularly for remittances and attendant consumption.
“While investment momentum remains firm, the agriculture sector contracted, largely due to strengthening El Niño weather conditions. This combination led to considerable weakness in rural incomes and overall domestic demand,” the bank said.
“Despite steady growth in private investment, lack of fiscal spending continues to pose a challenge,” Barclays added.
With El Niño expected to remain firmly in place until mid-2016, the bank said the Philippine economy is likely to grow by just 5.5 percent in 2015 after three years of above 6-percent growth.
Another near-term risk, Barclays noted, is an unexpected weakness in overseas workers’ remittances. August, in particular, saw a 0.6 decline from a year earlier, the first since April 2003.
“The drop slowed the year-to-date growth in remittances to 4.3 percent year-on-year from 5.8 percent a year earlier and raised some questions about the sustainability of private consumption in the short term,” it said.
Still, Barclays said the weakness would be transitory. The decision by overseas workers to hold off from sending money home due to a weakness in their host countries’ currencies could result in higher remittances closer to the holiday season, it said.
“All in, we believe a potential third quarter decline in remittances would be temporary and unlikely to be a significant risk to the economy. We continue to forecast 3.5 percent growth in remittances in 2015,” it added.
Above all, Barclays said the Philippines was still enjoying one of the strongest external positions among emerging markets. In particular, the current account is expected to remain solidly in surplus despite the decline in remittances.
The investment bank pointed out that tourism receipts were improving and that lower oil prices were providing a significant cushion for the overall trade balance —factors it believes will persist in 2016.
“We expect the current account surplus to be 4.5 percent of GDP (gross domestic product) in 2015 and decline marginally to 4 percent of GDP in 2016,” Barclays said.
DBS, in noting September’s 24.7-percent contraction in merchandise exports, said the full- year decline could be closer to 5 percent instead a previously expected 2 percent.
“Clearly, the government’s official target of 5 percent growth this year is beyond reach,” it said.
This alone does not affect its assessment of the economy by much, DBS said, pointing out that given two consecutive years of robust export growth, this year’s moderation was partly due to high base effects.
“More importantly, overall GDP growth has been driven mostly by consumption and investment growth anyway. GDP growth circa 6 percent is still in the offing for next year,” it added.
From the flows perspective, DBS said that as long as remittances continue to come in at around $2 billion per month, external financing risks would remain manageable even if the goods trade balance slips into negative.
The current account balance is still likely to hit a surplus of about 3 percent of GDP in 2016, the bank said.