Despite external headwinds, the Philippines is expected to grow the fastest among Asean economies until next year on the back of robust domestic demand and strong services exports, Standard Chartered Bank said Thursday.
“The Philippines’ domestic growth engine is firing on all cylinders, even as headwinds from slower global demand persist. We expect the Philippines to be the fastest growing Asean economy in the near term, recording strong growth of 6.8 percent in 2016 and 6.7 percent in 2017,” Standard Chartered economist for Asia Chidu Narayanan said in a statement.
The gross domestic product (GDP) grew 7.1 percent in the third quarter—the fastest among emerging Asian economies, bringing the nine-month average to 7 percent. The government targets a GDP growth of 6-7 percent this year and 6.5-7.5 percent next year.
“We believe strong domestic demand, combined with increasing infrastructure investment and steady growth in the services sector (which makes up almost three-fifths of the economy), will strongly support economic growth,” Narayanan said.
Offset weak export
He said the increase in services exports would help offset the impact of the weak export of goods and the slowdown in overseas remittances.
Economists expect US President-elect Donald Trump to impose protectionist policies that may impact on Philippine exports to the US and take a hit on remittances.
“We also expect services exports to sustain the current account surplus. We believe that the Philippines current account balance will likely remain in surplus—we forecast smaller surpluses, but surpluses nevertheless, of 1.3 percent of GDP in 2016, 1.1 percent in 2017 and bottoming out at 1 percent in 2018. We believe that support from services exports, combined with steady remittance growth, will likely offset the larger-than-expected deficit in goods trade,” Narayanan said.
Slower imports growth
Moving forward, Narayanan said Standard Chartered expects slower growth in capital goods imports next year, which could, in effect, reduce pressure on the current account.
“Business process outsourcing (BPO) service exports will likely take over from remittances as the most important driver of the current surplus,” Narayanan also added.
“Still strong capital goods imports in 2017 are the biggest risk to our view of a surplus. A sharper-than-expected rise in crude oil prices also presents downside risk to our forecast. However, such a current account deficit would likely be only temporary, and not worrying. Not all deficits are bad, especially those driven by higher capital goods imports,” he said.