ADB trims 2015 outlook, StanChart sees flat 2016
Weak external demand will affect the Philippines to a larger degree than initially expected, with new reports highlighting risks and prompting revisions to economic growth outlooks.
The Asian Development Bank (ADB), in an update to its Asian Development Outlook, on Thursday trimmed its expectation for 2015 Philippine growth to 5.9 percent from 6 percent previously.
Standard Chartered Bank (StanChart), meanwhile, in a separate report said the country would likely see no pickup next year. After earlier noting that election spending could provide a slight boost, it said 2016 growth would likely stay at 5.7 percent, the same rate forecast for this year.
The outlooks are below the government’s 7 percent to 8 percent target.
“The unexpectedly sharp drop in net external demand prompts a small downward revision in the growth forecast to 5.9 percent in 2015,” the Manila-based ADB said in its update.
It noted that net external demand had pulled down gross domestic product (GDP) growth in the first three quarters, to an average of 5.6 percent, reflecting a brisk expansion in imports and only a modest rise in merchandise exports.
The country recorded a P58.8-billion trade deficit for the first nine months of 2015, a reversal from the P7.3-billion surplus last year. Net exports plunged by 906.4 percent during the period.
Going forward, the ADB maintained its 2016 forecast at 6.3 percent but did not cite specific drivers for the growth outlook.
StanChart, meanwhile, said sub-6 percent growth would continue as exports and investments face challenges, offsetting other positives in the domestic economy.
“We think the balance of risks to growth is tilted to the downside in first-half and the upside in the second-half,” it said.
Exports and investments, the bank noted, have been swing factors for growth over the past decade.
External demand— particularly from China, Japan and Association of Southeast Asian Nations —remains persistently weak, Standard Chartered said, noting that merchandise exports in US dollar terms fell by 4.3 percent year-on-year in the first eight months of 2015 compared with a 10.2 percent increase a year earlier.
“In Philippine peso terms, exports fell a smaller 2.7 percent year-on-year on year-to-date; the boost from the weaker currency was only marginal given the peso’s relative resilience.
Weak export growth may continue in 2016 if global growth remains modest,” it explained.
Investment growth, meanwhile, is likely to stabilize at a moderate level in 2016.
“Approved investment amounts have been below 2013 and 2014 levels since the start of this year. Sluggish global growth may also prompt foreign investors to delay investment,” it said.
Despite this, the bank said the Philippines remains an attractive destination for foreign direct investments given favorable labor dynamics and potentials for development.
Approved investments are concentrated in the utilities, manufacturing and business services sectors, boding well for growth in these sectors, it noted.
StanChart said the manufacturing outlook was promising over the medium term, especially for machinery and equipment, lower demand for food and soft commodities pose near-term headwinds.
Services, particularly the business process outsourcing sector, will remain an important growth driver and strong services exports should provide a cushion against lackluster demand for merchandise exports.
In addition, it said solid labor market should support household consumption, along with election-related spending.
Employment growth averaged 1.1 percent in the first half of 2015, slightly better than the 0.9 percent increase during the same period a year ago.
“We expect the manufacturing, government services, private services, and transport, communications and storage sectors to benefit in the lead-up to the election, boosted by increased demand for printing and publishing, media services, advertising, and public administration spending,” StanChart said
Increased demand in these sectors may also provide secondary support to other parts of the economy and may provide a 0.10 percentage point to 0.3 percentage point boost to 2016 gross domestic product growth.
While growth in overseas remittances has slowed, it remains positive in local-currency terms, it said, saying it should support the outlook for household consumption and domestic growth.
“We also see potential upside for government spending ahead of the election and as the new administration shapes economic policy for the next six years,” it said.
Tourist arrivals have posted double-digit growth in recent months, which may also boost growth, it added.
The ADB, meanwhile, also trimmed its Philippine headline inflation outlook from 2 percent to 1.6 percent, below the 2 percent to 4 percent target of the central bank.
It noted that inflation averaged 1.4 percent in the first 10 months of 2015 but could pick up in the coming months “because of the increasingly severe El Niño and the weakening of the peso, which has fallen by 5 percent against the US dollar in the year to mid-November.”
Still, it stressed that year to date, inflation has been milder than expected.
For 2016, the ADB sees inflation averaging 3 percent, within the central bank’s target.