2017 growth hinges on infra spending

After a presidential election year, the Philippine economy is seen to expand at a slower but still robust pace that will enable it to outperform most of its regional peers this year.

The country’s gross domestic product (GDP) growth this year is seen to grow by 6.3 percent, easing from last year’s full-year growth of 6.8 percent, based on market consensus.  Because the fourth quarter GDP growth came in just within expectations at 6.6 percent, there was no upgrade just yet in most institutions’ 2017 forecasts, especially in the light of the continuing uncertainties in and challenges to the global economy, and the absence of extraordinary spending that boosted last year’s output.

“The solid performance of the Philippine economy in 2016 highlights the country’s sound fundamentals even amid the highly volatile global economy last year,” said Metropolitan Bank and Trust Co. research analyst May Ann Revillas in a research note issued on Thursday.

“The plans for massive infrastructure spending by the Duterte administration is seen to further boost investment spending growth. The sustained expansion in Investment spending is expected to shield the domestic economy from negative externalities and form the backbone for a more inclusive growth,” Revillas said.

Revillas said that for 2017, Metrobank’s full-year projected average range of 6.5-7.5 percent was largely hinged on the realization of the government’s infrastructure spending plans.

“Consumption spending will still be positive as the value of overseas Filipino worker remittance inflows increase amid the stronger US dollar. The agri (agriculture) sector, a drag to GDP growth on the supply side, is seen to recover this year, while the industry and services sector will continue to post positive expansions,” she said.

With a budget deficit cap of 3 percent of GDP this year and an economy buoyed by strong consumer and business sentiment, HSBC economist Joseph Incalcaterra said economic growth would likely remain resilient at 6.5 percent this year through 2018.

ING economist for Asia Tim Condon said the Philippines would retain the top growth spot this year if the government’s growth forecast of 6.5-7.5 percent were to materialize.  ING, for its part, sees the Philippines growing at 6.2 percent this year, close to the consensus forecast of 6.3 percent.

Based on consensus forecast, Condon said that only China was expected to outpace the Philippines’ growth. Forecasts point to China growing by 6.4 percent this year.

Japanese investment house Nomura expects the Philippine GDP to come in at 6.3 percent this year but it sees potential for upside surprise.

While the fourth quarter year-on-year GDP growth was within consensus at 6.6 percent, Nomura said  that on a quarter-on-quarter seasonally adjusted basis, growth picked up to 1.7 percent from 1.5 percent in the third quarter, “which implies a momentum gain after an already stellar third quarter.”

The contribution from domestic demand remained solid at 9.6 percentage points (pp), although this was lower than the average 11.7 pp contribution in the first three quarters, which reflected a boost from election-related spending, Nomura said.