The Philippines is expected to attract renewed foreign investment interest, which could help drive the economy forward this year along with election-related and infrastructure spending, a report from a major investment adviser said.
In the March issue of First Metro Investment Corp’s (FMIC) monthly economic and capital markets report, The Market Call, FMIC President Rabboni Francis B. Arjonillo said the country’s economic performance is attracting foreign investment, as indicated by the latest data showing net foreign direct investment (FDI) in the Philippines.
“Foreign investors have put back the Philippines in their radar screens. Latest data on net foreign investments (FDIs) suggest 2015 inflows of $6 billion (annualized from $5.5 billion in January to November data), [which is]a strong follow-up on the record of $6.2 billion in 2014,” Arjonillo said.
“Foreign investors’ interest in the country, likewise, shone in the $2-billion Global Bond exchange and issuance of the Philippine government which secured a record-low 3.7 percent coupon rate for the 25-year issue. These actions appear to vindicate robust economic data for 2016 that started to come out in February,” he added.
The FMIC’s March Market Call noted that the country’s economic performance would likely excel and attract investments from East Asia in the first quarter, except for China.
Aside from the bright prospects in FDI, FMIC anticipates the Philippine economy this year will receive a boost from election spending before the May elections, as well as the public infrastructure expenditures targeted to hit 5 percent of the national gross domestic product in 2016.
The investment bank also suggested that government spending will expand by 15 percent this year as most of the budget has already been deployed to various agencies and local government units.
FMIC said that with a “fairly moderated” El Niño situation in January and February, the agricultural output may turn out to be “slightly positive, which together with robust industrial production and services output, should result in a third consecutive quarter of above-6 percent GDP growth.”
“It should challenge the 6.5 percent mark, especially if agriculture and exports do not pull down the two other major sectors,” it added.
In terms of inflation, the report indicated that FMIC forecasts an average of 1.3 percent headline inflation rates in the first quarter of the year due to the “depressed” crude oil prices that support consumer spending especially during the time of elections.
“However, inflation rates may start inching up in Q2, but are still likely to hover below 2 percent,” FMIC said.
“As inflation remains below the bottom side of the government’s target, the BSP will likely remain on hold for the rest of first half of the year. Money growth will also likely stay at double-digit pace, albeit still closer to 10 percent than 15 percent,” it added.
For exports, despite the Department of Trade and Industry’s (DTI) target of 8 percent to 9 percent growth from the negative 5 percent growth last year, FMIC said exports will likely “only improve slightly to positive territory on the basis of consistent U.S. economic growth and Eurozone QE continuing to boost output and employment gains in the area.”
Positive global economic growth would mean healthy appetite of markets and increase in demand of the country’s exports, the report said.
Money remitted by overseas Filipinos, on the other hand is expected to slow down, FMIC said, because of the decline in the employment of experienced OFWs in the Middle East in the earlier parts of the year, who were described as being replaced by younger and cheaper manpower.
“Finally, we may see a respite in the peso’s weakness in the short term. However, this is quite tenuous as any sign of strength in the US economy would easily bring back the US-Philippine rate to a depreciation mode,” the report read.
Established more than 50 years ago, FMIC is the investment bank of the Metrobank Group, which is owned by businessman George Ty. It specializes in wide array of services in equity and bond markets, and also publishes monthly and periodical reports and researches intended for the followers of the capital markets.