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Below-6% PHL growth still fast in Asia

Posted on December 04, 2015

PHILIPPINE GROWTH will likely fall short of 6% this year due to weakened exports and last quarter’s slower-than-expected expansion, according to separate analyses issued yesterday, but this pace will still be faster than that of many other Asian economies and should pick up in 2016 due to continued improvement in state spending and the additional boost from election-related expenditures.

The Asian Development Bank (ADB) has again trimmed its growth projection for the Philippines, according to the regional lender’s December supplement to its Asian Development Outlook 2015 Update report that was published in September.

ADB said the country will likely grow 5.9% for 2015, below a 6% forecast issued in September and the 6.4% announced in the March Asian Development Outlook 2015 (ADO).

The forecast for the country was tempered further in the wake of “lower-than-expected” 6.0% gross domestic product (GDP) growth last quarter that fueled a 5.6% year-to-date pace against an official 7-8% full-year goal, as well as in the face of continued weakness in merchandise exports that have fallen by 6.9% annually in terms of value to $43.746 billion in the nine months to September.

“The unexpectedly sharp drop in net external demand prompts a small downward revision in the growth forecast to 5.9% in 2015,” ADB said in its latest report, which noted at the same time that “[p]rivate investment recorded robust expansion and household spending was supported by higher employment, low inflation, and remittance inflows from Filipino workers overseas” last quarter.

“Government expenditure accelerated rapidly, with public expenditure rising by 41.2% in the third quarter as budget execution was enhanced.”

But even the Philippines tempered projection will be faster than Southeast Asia’s 4.4% average expected this year, and in developing Asia falls behind only India’s 7.4%, China’s 6.9% and Vietnam’s 6.5%. Developing Asia itself is expected to grow by an average of 5.8%.

ADB sees Philippine GDP growth picking up to 6.3% in 2016 -- a projection retained since the March ADO -- against Southeast Asia’s 4.9% and developing Asia’s 6.0%.

The regional lender also sees inflation rate this year logging in at 1.6% from the previous 2% estimate -- roughly coinciding with the Bangko Sentral ng Pilipinas’ (BSP) own downward-revised 1.4% forecast (from 1.6% previously) for 2015 -- before picking up to 3.0% next year, against BSP’s 2.3%.

In their separate report, economists of Standard Chartered Bank also pegged Philippine GDP growth below 6% in 2015 and 2016 -- at 5.7% for both years before picking up to 6.0% in 2017 -- to be outpaced this year only by India (7.4%), China (6.9%), Bagladesh and Vietnam (both 6.6%) as well as by Sri Lanka (6.3%).

“We expect 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,” economists Jeff Ng and Edward Lee said of the Philippines in the bank’s report titled “Global Focus -- Economic Outlook 2016: Retreat, regroup, rebound”.

“This may provide a 0.1-0.3 ppt (percentage point) boost to 2016 GDP growth.”

The economists, however, project a possible state spending slowdown early next year ahead of the May 9 national elections, “but we expect activity to pick up once a new government is in place...”

“We think the balance of risks to growth is tilted to the downside in H1 and the upside in H2.”

Next year, they said, “[t]he government may provide more support for growth than in 2015”, adding that “[t]he solid labor market, along with election-related spending, should support household consumption.”

At the same time, they “expect external factors to adversely affect GDP growth...”

“Investment and export growth face challenges. This may offset other positives in the economy in 2016,” they said.

Growth of investments, which contribute about a fifth to GDP, “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,” the report read.

“Even so, the Philippines remains an attractive destination for FDI (foreign direct investments) given its favorable labor dynamics and potential for development,” it added, noting that approved investment commitments have been concentrated in the utilities, manufacturing and business services, “boding well for growth in these sectors.”

Nomura analysts Euben Paracuelles and Lavanya Venkateswaran, meanwhile, retained their 5.8% and 6.5% Philippine GDP growth projections for this year and 2016, noting that the administration will “likely” boost state spending before the official ban on such expenditures kicks in shortly before the elections.

Citing the Dec. 1 decision of the Commission on Elections’ second division to disqualify Senator Grace Poe -- a survey front-runner -- and the decision of former Davao City Mayor Rodrigo R. Duterte to apply as substitute candidate to join the presidential race, the Nomura analysts said the risk of changes to the election landscape has heightened.

“Overall, we continue to think that, notwithstanding the risk of last-minute changes to the final line-up of candidates, the presidential election will be a tight contest, which should be supportive of the growth outlook,” they said in their Dec. 2 “Election Watch” note.

“Outgoing President (Benigno S.C.) Aquino (III) is likely to step up fiscal support to growth, particularly on infrastructure projects, in a bid to support (Manuel) Mar (A.) Roxas (II)’ candidacy and ensure policy continuity.” -- Melissa Luz T. Lopez

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