Late spurt boosts outlook for 2016


Mixed developments defined the Philippines’ economic performance last year but the government remains optimistic that gross domestic product (GDP) growth will hit at least 6 percent, contrary to analysts’ views that expansion will be limited to a range of 5.5 percent to 5.9 percent.

The forecasts are lower compared to 2014’s actual growth of 6.1 percent and are also below the official 7 percent to 8 percent growth target for the just-concluded year.

For 2016, however, both the government and private analysts share a more upbeat view, noting the likelihood of sustained domestic demand and a boost from the national elections.

Key 2015 developments
Philippine economic growth accelerated to 6 percent in the third quarter, an improvement from the upwardly revised 5.8 percent recorded three months earlier.

Growth was led by the service sector, which expanded by 7.3 percent—the highest since the 7.4 percent recorded in the third quarter of 2013, while agriculture posted a 0.4 percent recovery from a 2.6-percent decline a year earlier.

With the 6 percent growth during the quarter, the Philippines was one of the fastest-growing Asian economies, next only to China’s 6.9 percent and Vietnam’s 6.8 percent.

The GDP expansion during the period brought year-to-date growth to 5.6 percent.

The job market also showed an improvement with the unemployment rate falling to its lowest in 10 years, hitting 5.6 percent in October from 6 percent a year earlier. Underemployment also fell to 17.6 percent compared to 18.7 percent a year earlier.

The country’s trade deficit, on the other hand, widened in the first three semesters of 2015 to $5.634 billion from $4.404 billion a year earlier. This was a result of weak Philippine exports, which contracted by 6.9 percent to $44.281 billion as of end-September, against 2.3 percent growth in imports to $49.92 billion.

Cash operations by the national government, meanwhile, hit a deficit of P52.57 billion as of the end of October, well below the P247.49-billion target for the period and the full-year goal of P283.7 billion. Total January to October disbursements hit P1.82 trillion while revenues totaled P1.767 trillion.

In primary terms, which exclude interest payments on foreign and domestic debt, the government posted a deficit of P219.3 billion in the 10-month period, down from P240.6 billion a year earlier.

Growth estimates
Considering these developments, economic planners said they remained confident that the country would achieve 6 percent growth in 2015, with prospects for succeeding years likely much better if reforms are pursued by the next administration.

“Taking into consideration the 6-percent GDP (gross domestic product) growth during the third quarter of 2015, we expect our high growth trajectory to continue in the fourth quarter of the year as domestic demand continues to be strong,” Socioeconomic Planning Secretary Arsenio Balisacan said.

He claimed that favorable indicators supported the projection and that the National Economic and Development Authority (NEDA) had also factored in the impact of typhoons.

“In our data, we know that we have some typhoons coming in November and December. The last two ones were damaging and there were serious losses and damage to infrastructure, but not in a magnitude that will adequately make a dent on growth prospects for the full year,” Balisacan said.

Meanwhile, estimates from the Asian Development Bank (ADB), BMI Research, ANZ Research, Capital Economics, Standard Chartered Bank, DBS, Barclays, Standard & Poor’s (S&P), Fitch Ratings, and HSBC placed GDP growth in the range of 5.5 percent to 5.9 percent.

The Manila-based ADB trimmed its expectation for 2015 growth to 5.9 percent from 6 percent previously on an unexpectedly sharp drop in net external demand.

The Fitch Group’s think tank, BMI Research, said domestic resilience would persist and would support the Philippine economy to 5.7 percent growth despite rising external challenges.

ANZ Research stood by its GDP forecast of 5.7 percent, with domestic consumption growth enjoying firm momentum despite disappointing remittance growth.

“Yet, the trade recession and persistent failure of the government to ramp up spending is capping the growth in domestic demand,” it noted.

London-based research consultancy Capital Economics, meanwhile, said the third quarter acceleration and the upward revision of the second quarter figure meant the economy was still on track to grow by about 5.7 percent in 2015.

Standard Chartered Bank and Singapore-based DBS, for their part, also see full-year GDP growth coming in at 5.7 percent.

UK-based investment Bank Barclays has a lower 5.5 percent forecast but noted a 12 percent increase in the year-to-date government expenditure and improving momentum in fiscal outlays.

Debt watcher S&P maintained its 2015 growth forecast at 5.6 percent, viewing the Philippines as the strongest performer among its regional peers.

Fitch Ratings has the same 5.6 estimate, noting that broadly steady overseas remittances, along with revenues from business process outsourcing, would help support the country’s external finances and resilience to shifts in investor sentiment.

Providing the least optimistic estimate was banking giant HSBC, which said third quarter GDP growth more or less tracked its 5.5 percent forecast for 2015.

“While this may not appear stellar when compared with the government’s 7 percent to 8 percent growth target, it is nonetheless a solid performance in the context of decelerating growth elsewhere in the region,” HSBC said.

Upbeat for 2016
With the year all but over when they released their GDP estimates, both the NEDA and private analysts said things would likely be better in 2016.

Balisacan, who is the NEDA director general, said there was room for accelerated growth next year.

“The growth target for next year remains at 7 percent to 8 percent but the target of 7 percent is quite realistic,” he claimed.

With an expected recovery for advanced economies this year and in the medium-term for the global economy, Balisacan said the Philippines could achieve upper middle-income status by the end of the next administration’s term.

Analysts, meanwhile, said the economy could grow within a range of 5.5 percent to 6.5 percent.

Capital Economics was the most optimistic, forecasting 6.5 percent growth while qualifying that its medium term outlook was dependent on the choice and performance of the next president.

“However, it would take a spell of very bad governance to undo the progress made under President Benigno Aquino 3rd, and we expect the economy to continue growing strongly,” it said.

The ADB, for its part, set its 2016 forecast at 6.3 percent but did not cite specific drivers.

DBS expects a jump to 6.1 percent while ANZ Research and BMI both forecast a 6-percent expansion, with all three citing domestic demand—fueled in part by election-related spending—as supporting the economy.

Fitch forecasts GDP to expand by 5.9 percent, while S&P sees a slightly lower 5.7 percent rise. It warned that policy continuity could become an issue as the Aquino administration steps down later this year.

StanChart said the country would likely see no pickup, forecasting 2016 growth as likely stay at 5.7 percent. It said sub-6 percent growth would continue as exports and investments faced challenges, offsetting other positives in the domestic economy.

HSBC, which forecast growth to increase slightly to 5.6 percent, said private consumption would likely stay strong throughout the election cycle.

Bringing up the rear with the lowest forecast for 2016 was Barclays, which pegged its 5.5 percent forecast on the El Nino weather phenomenon remaining firmly in place up to the middle of the year.


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