Local economy faces many risks in 2016

This 2016 is a year to view the Philippines with “guarded optimism” as a “sound” domestic economy is confronted by escalating external headwinds, geopolitical risks, domestic infrastructure bottlenecks and presidential election uncertainties, investment bank First Metro Investment Corp. said on Wednesday.

FMIC sees the domestic economy sustaining a growth of 6 to 6.5 percent this year on the back of robust domestic consumption and a moderate inflation environment. This outlook is a bit rosier than the market consensus of 5.9 percent although slower than the 7-percent growth path long desired by government economic managers.

The main-share Philippine Stock Exchange index (PSEi) is projected to hit a high of 7,500 this year, backed by an average growth in corporate earnings of 13.8 percent, while investors are seen willing to pay 18 times the amount of earnings they expect to make from the market.

“Our outlook for the Philippines remains optimistic but guarded due to some uncertainties in the local and global financial markets,” FMIC president Rabboni Francis Arjonillo said in a briefing on Wednesday.

“The country’s economic performance will still be among the highest in the region. The faster implementation of public infrastructure projects, continuing private construction, strong domestic consumer demand, heightened election-related spending and better exports will provide boost to GDP (gross domestic growth) in 2016,” Arjonillo   added.

Overseas remittances and business process outsourcing (BPO) are still seen to be key drivers of domestic consumption. Overseas remittances are seen flat or growing by a meager 2 percent as the oil price slump impacts on oil-producing countries–many of which have a big concentration of overseas Filipino workers. But higher remittances from the US—where economic recovery is happening and thus justifying the start of a cycle of interest rate increases—are seen compensating for the slack in the Middle East.

University of Asia and the Pacific economist Victor Abola said the country was not at risk of any asset bubble this year or next but cited a number of key external challenges and geopolitical risks.  For instance, he said the tension in the Middle East could “escalate into something worse” while the militant Islamic State or ISIS continued to be a problem. In Asia, he noted that China was moving to a slower albeit more normal growth path against a bigger base.