Mixed forecasts for 2016 economic growth

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Economic growth this year is expected to stay below the government’s target, with forecasts pointing to a continued slowdown or a modest improvement from last year’s 5.8 percent.

Domestic demand will continue to be the main driver, analysts said, amid risks such as the El Nino weather phenomenon, a change in government later this year and uneven global growth.

Gross domestic product (GDP) growth could accelerate to as high as 6.5 percent or moderate to 5.1 percent, according to the forecasts, below the government’s official 7 percent to 8 percent target. Last year’s 5.8 percent result was lower than the 6.1 percent posted in 2014.

At 6.5 percent, both Nomura Global Economics and London-based research consultancy firm Capital Economics were the most optimistic.


“For 2016, we reiterate our GDP growth forecast of 6.5 percent, which reflects our view that the elections in May 2016 will likely further boost already healthy domestic demand, rather than act as a headwind,” Nomura said.

It also expects more fiscal support to growth from continued infrastructure project implementation, which should also crowd in private investment and foreign direct investments.

Capital Economics, for its part, said it expected the Philippines to remain one of the region’s best performers, at least for the next couple of years.

It said that while the looming end of President Benigno Aquino 3rd’s six-year term had cast some doubt over the medium-term outlook, he will be leaving the economy in better shape than it has been for a long time.

Metropolitan Bank and Trust Co. (Metrobank) Research, meanwhile, expects full-year 2016 growth to come in at 6.3 percent.

It said growth in state spending will likely be sustained until at least the first half as the government frontloads expenditures, while consumption spending will remain robust amid still soft commodity prices, low interest rates and solid remittance inflows.

Election spending is expected to support key services such as transportation, communication and storage, business activities and retail trade, it added.

“The agriculture sector will remain weak as El Niño extends to the first half. Risks to the domestic economy remain amid the effects of the still uneven global economic growth and impact of financial market volatilities,” Metrobank Research noted.

Singapore-based DBS said there was a chance that 2016 GDP growth could exceed its 6.1-percent forecast given strong momentum in the fourth quarter of 2015. The last three months of the year saw growth pick up to 6.3 percent from 6.1 percent in the July-September period.

“While the election campaigning process may provide a boost to consumption growth, the pace of investment growth may also ease ahead of the elections. Indeed, it would be hardly surprising if the surge in investment last quarter turns out to be partly a front-loading before an election year,” DBS said.

Both debt watcher Moody’s Investors Service and Fitch-owned BMI Research, meanwhile, expect 6 percent GDP growth for 2016.

Moody’s said growth would be underpinned by the public private partnership program for infrastructure development and a pickup in economic activity as the country gears up for the midyear elections.

“Although the presidential elections create some political uncertainty, we expect economic reform and policies that foster infrastructure investment and maintain fiscal prudence to remain the key long-term goals of the government,” it said.

BMI Research said the Philippine economy was continuing to shrug off considerable external woes, powering forward on the back of robust domestic demand.

“We expect these factors to remain in place in 2016, and forecast real GDP growth to accelerate slightly to 6 percent. That said, we note that the potential for a regional or global recession, as well as political uncertainty ahead of May’s elections, pose salient risks to our sanguine outlook,” it said.

Banking giant Standard Chartered Bank, meanwhile, retained its 5.7-percent growth forecast for 2016, saying the Philippines is still likely to outperform most Asian economies this year because of strong consumer demand. However, there could be some moderate headwinds for investments.

United Kingdom-based investment bank Barclays said it also remained comfortable with its 5.5 percent estimate for the year.

“[U]pside risks from higher government and investment spending are mitigated by downside risks from a deteriorating external economy, which is weighing on export of goods and services,” it said.

Providing the lowest growth forecast for the Philippines was Citi Research, which retained its 2016 outlook of 5.1 percent.

It said the domestic demand theme would continue to prevail, with household consumption leading the way. “Election spending peaks in the first quarter of 2016 but windfall remittance gains with the peso veering to 48.50 would prime demand,” it added.
Citi said the risk of slower momentum would come from the transition to a new government, which could cause public investments to slow down sharply post-elections, unfamiliarity with the new government’s policy agenda that could curtail private investments, and offshore developments led by tightening global rates and an uncertain China/emerging markets recovery.

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