THE PHILIPPINE economy is seen to face growth constraints and further currency pressures due to a more challenging global and macroeconomic backdrop in 2016, a presidential election year.
American investment bank BofA Merrill Lynch trimmed its gross domestic product (GDP) growth forecast for the Philippines to 5.5 percent next year from an original forecast of 5.7 percent.
The peso, on the other hand, is seen to depreciate to P48.80:$1 by end-2016 from P46.30:$1 by the end of this year. The local currency closed at 46.82 against the greenback on Friday.
The new GDP forecast is at par with Merrill Lynch’s growth outlook for the Philippines this year. Its forecast of 5.5 percent for both 2015 and 2016 is below the respective market consensus growth of 5.7 and 5.9 percent.
“The cut mainly reflects a softer export growth outlook, while the domestic economy remains underpinned by private consumption, fixed capital investments and government spending,” Merrill Lynch said in a research note dated Oct. 30.
“The GDP growth cut is relatively modest, as the Philippines is not an export-driven economy. Exports [as a percentage of GDP] have been halved in the last decade, to around 20 percent. That said, the Philippines is not entirely immune from slower external growth as the country remains dependent on remittances from Filipinos overseas—which for now are still expected to grow at low-single-digit rates,” the investment bank said.
Even with downscaled growth forecast for 2016, Merrill Lynch sees the Philippines growing at a faster pace than Southeast Asian peers like Malaysia (4.3 percent), Thailand (3.5 percent), Indonesia (5.1 percent) and Singapore (2 percent). The Philippines is also seen to outperform these countries this 2015.
“With the global and regional macro backdrop becoming increasingly challenging, we expect regional growth to decelerate gradually, but remain resilient. A slower and rebalancing China, coupled with a softer-than-expected US recovery, will likely weigh on growth for the rest of the region through the trade channel,” the research said.
On the other hand, despite the terms-of-trade gains from commodity prices, Merrill Lynch said overall growth would likely slow down further without a significant pickup in domestic demand momentum.
In sum, the investment bank had trimmed its growth outlook for emerging Asia by 0.2-percentage points to 5.9 percent in 2016, while maintaining its 2015 forecast at 6 percent.
“Specifically, for China, the expansion of consumption and the service sector will unlikely offset the drag from the slowdown in investment and the manufacturing sector. In contrast, domestic demand appears resilient in Korea and the Philippines, but the worsened export outlook poses bigger downside risks to growth than previously anticipated,” Merrill Lynch said.
Hong Kong, Malaysia and Singapore and seen facing export headwinds, while domestic issues are not expected to be favorable for consumption and investment sentiment in these markets.