Strong growth in the Philippines’ construction sector should continue until the yearend, supported by a robust private sector and stable monetary policy, according to a report published by BMI Research, think tank of the Fitch Group.
Despite the sector’s slower growth pace of 4.5 percent year-on-year in the first quarter, BMI said it is keeping its full-year growth forecast of 10.9 percent for the sector given the brisk private sector construction activity particularly in residential projects.
The relatively stable monetary policy should also be positive for the sector, it said.
“Residential building will be supported by the government’s efforts to provide for growing demand for housing, with the Housing and Land Use Regulatory Board targeting construction of 1 million housing units by 2016,” BMI said.
BMI cited research by real estate consultancy Colliers International saying that “25,000 residential condominiums will be built in Manila’s main business districts over the next two years, representing almost half the 58,000 units built over the past 40 years.”
Besides strong residential project construction, other factors that will drive the growth of the construction sector are the strong services income coming from the business process outsourcing (BPO) sector and the robust remittance inflows that will boost housing demand.
“In addition, we expect a relatively stable monetary policy to provide a favorable environment for potential homeowners and developers. Our Country Risk team maintains that the Bangko Sentral ng Pilipinas (BSP) will keep its benchmark interest rate unchanged at 4.0 percent in 2015, while expecting a slight rise to 4.25 percent in 2016,” the think tank said.
This view, it added, is underpinned by “benign inflation and strong growth outlook despite growing external headwinds.”
BMI also noted that public construction will pick up in the coming quarters of the year as the Aquino administration looks to accelerate its public-private partnership projects to be able move projects forward before the presidential elections on May 2016.
“We also expect a pickup in public construction activity as projects under the government’s public-private partnership program gain traction,” said BMI Research.
Beyond 2015, BMI said it expects growth of the construction sector to moderate due to the change in leadership, which could undermine policy continuity and result in delays or even cancellations of various infrastructure projects.
“Beyond 2015, we believe political uncertainty will weigh on investment into the sector and expect growth to moderate to an annual average of 8.3 percent, which is largely in line with the 10-year historical average growth rate of 8.1 percent registered between 2005 and 2014,” said BMI.