PHILIPPINE economic growth will be an “exception” in a region feeling the effects of the US-China trade war, Nomura Global Markets Research said in a report, adding that its forecasts for Philippine economic growth are “above consensus” at 6% in 2019 and 6.7% in 2020.

In a report published Monday, “Asia in 2020: Glass half full and half empty,” Nomura Global Markets Research added: “In the Philippines, we expect a V-shaped pickup in growth, driven by accelerating public investment spending and strengthening overall domestic demand. We therefore reiterate our above-consensus GDP growth forecasts of 6% in 2019 and 6.7% in 2020 (Consensus: 5.8% and 6.1%, respectively),” it said.

Nomura Global’s 6% estimate for 2019 is scaled back from the 7.1% projection it made in 2018, and lower than the 6.2% rise in 2018. The government’s official target range is 6-7% for 2019 and 6.5-7.5% for 2020.

Nomura Global said the “Philippines has fared relatively better” than some of its neighbors that were affected by the US-China trade war, which resulted in scaled-back growth forecasts for Singapore and Thailand.

“Indeed, the exception in the region is the Philippines, which we believe is on track for a V-shaped pickup, as fiscal policy is becoming more expansionary, led by strong public sector investment spending.”

Nomura Global also expects the country to miss its fiscal deficit target of 3.2% of GDP (gross domestic product) this year. The Japanese research house only sees a 2.6% budget deficit in 2019, despite government efforts to catch up on spending, particularly on infrastructure.

The budget deficit in the 10 months to October was P348.3 billion, less than the P438 billion deficit a year earlier and well below the P624.4 billion full-year target, which is the equivalent of 3.2% of GDP.

In 2020, Nomura Global sees the budget deficit widening to 3.3%.

The economy expanded at a weaker-than-expected pace in the first half at 5.5% which public and private economists blamed on the delayed passage of the budget, leaving new infrastructure projects unfunded. Spending was also dampened by the 45-day ban on new public works projects ahead of the midterm elections in May.

Year-to-date, GDP growth was 5.8%. It will take 6.7% GDP growth in the fourth quarter to raise the full-year average and hit the low end of the 6-7% target this year, which economic managers said is attainable.

However, Nomura said a repeat of this year’s budget delay is unlikely as legislators focus their efforts on passing the proposed P4.1 trillion budget for 2020 on time, but warned that “another delay in the budget poses a significant threat to both near- and medium-term growth prospects.”

“We continue to believe the government is gaining traction in its catch-up spending plans and has a strong incentive to close any remaining under-spending gaps (relative to programmed spending) for the year to reach its growth target of at least 6% in 2019,” it said.

Latest data showed that government spending grew for the fourth straight month in October but at a smaller increment as it inched up 1.37% to P310.8 billion from P306.6 billion a year prior.

Meanwhile, preliminary data indicates a contraction in infrastructure spending in October to P82.2 billion, 12.92% lower year-on-year.

The government still posted a narrower budget deficit for the month at P49.3 billion, down 17.71% year-on-year and reversing an 85.52% increase in the previous month.

Nomura Global views the cash-based budgeting system, which the government is currently transitioning to, as speeding up the implementation of infrastructure and other projects, as the system requires allocations to be spent within a year.

“We believe the next phase of fiscal reforms in the Philippines is likely to be passed in the coming months, particularly the reform package to phase in corporate income tax cuts, accompanied by rationalization of fiscal incentives as an offset to foregone revenues,” Nomura added. — Beatrice M. Laforga