The Philippines’ gross domestic product (GDP) may grow by a still robust 6.5 percent in 2014 and again in 2015 despite the stunted pace of government spending resulting from the controversy over the presidential Disbursement Acceleration Program (DAP), the UK-based investment bank Barclays said.a
In its Emerging Markets Quarterly report, Barclays said subdued fiscal spending has been a drag on recent growth, affecting capital spending and government consumption, and also starting to affect private consumption spending, despite government efforts to speed up outlays ahead of the 2016 elections.
“The recent controversy over President [Benigno S.] Aquino’s 2011 decision to accelerate infrastructure spending without Congressional approval has not helped, and it has added a degree of uncertainty around future government spending. As such, fiscal outlays have been volatile and the Typhoon Haiyan (Yolanda) reconstruction efforts delayed,” it said.
Strong exports momentum
However, the slow government disbursement can be offset by exports growth, which continues to be strong, the Barclays report said.
Given an improving external economic backdrop, led by the United States, Barclays said strong momentum in export growth in the first half of the year may be sustained in 2014 and 2015.
In the six months to June this year, total merchandise exports by the Philippines grew 8.3 percent to $29.809 billion from $27.515 billion in same period of 2013.
“Exports to the US, Japan and China have driven the strength in exports, emphasizing the diverse nature of electronics demand. In terms of commodities, the breakdown by product shows that electronic exports remain elevated in volume terms, and demand for clothing and agriculture products has picked up at the margin,” it said.
The investment bank said it also sees private investment serving as a strong growth driver this year, noting that the construction sector could perform significantly better in the second half, which should support investment.
It added that the government’s efforts to increase spending are likely to bear fruit in the second half of 2014 and 2015, which may augment domestic demand.
Barclays also observed the underlying fiscal position of the Philippines remains comfortable, and the government is most likely o undershoot its fiscal deficit target.
Healthier fiscal, BOP positions
The investment bank said it has lowered its forecast for the 2014 fiscal deficit to 1.5 percent of GDP, to take into account the slower pace of spending. In 2015, it expects that fiscal deficit will rise slightly to 1.6 percent of GDP.
On the external front, Barclays said the current account surplus remains healthy, expecting the current account position to yield a large surplus of 4.2 percent of GDP in 2014 and 3.7 percent in 2015.
“This would be consistent with the strong first-half export performance and the robust outlook for coming months. Our expected narrowing in the 2015 surplus is largely driven by stronger import demand, as investment is likely to stay elevated,” the bank added.