Investment banks bullish on sustained GDP growth

MANILA, Philippines - Investment banks expect the economy to sustain strong growth this year.

Euben Paracuelles, economist at Nomura Securities Co. Ltd., said the economy would likely grow above seven percent in the second quarter from 6.9 percent in the first quarter before moderating slightly in the second half.

The country’s gross domestic product (GDP) expansion accelerated to 6.9 percent in the first quarter from the revised 6.5 percent in the fourth quarter of last year due to robust demand fueled by election-related spending as well as a strong pick up in investments.

“Our forecast implies a further pickup in in the second quarter, likely to above seven percent growth, before moderating slightly as the impact of election-related spending fades,” Paracuelles said.

Despite the strong growth, Nomura is keeping its GDP growth forecast at 6.5 percent this year after slowing down to 5.9 percent last year from 6.1 percent in 2014.

The bank’s baseline view remains that the Duterte administration’s policy approach would be pragmatic and the country’s new chief executive would not reverse the reforms implemented by outgoing President Aquino.

Paracuelles said the Bangko Sentral ng Pilipinas (BSP) is seen keeping interest rates steady despite the uptick in inflation to 2.4 percent this year from 1.4 percent last year as well as the introduction of the interest rate corridor (IRC) system.

Standard Chartered Bank (SCB) economist for Southeast Asia Jeff Ng said the Philippine economy appears to have shrugged off the soft growth patch from the third quarter of 2014 to the first quarter of 2015.

“We expect the strong momentum to be sustained for the rest of the year,” Ng said.

Ng explained the robust domestic demand, services exports particularly from the business process outsourcing sector, and fiscal support would more than offset the weakness in goods exports.

This, he said, prompted SCB to raise its GDP growth forecast to 6.4 percent instead of 5.7 percent this year. It also adjusted its quarterly GDP growth forecast to 6.3 percent instead of 5.5 percent in the second quarter, 6.1 percent instead of 5.6 percent in the third, and 6.2 percent instead of 5.5 percent in the fourth.

Ng said the Philippines would be able to achieve the 6.8 to 7.8 percent GDP growth target set by the Development Budget Coordination Committee.

Eugenia Victorino, economist at the Australia and New Zealand Banking Group, said, the bank is keeping its GDP growth forecast at 6.1 percent this year as growth is likely to ease in the second half.

“Election-related spending is still likely to provide support in the second quarter print. While President Aquino is expected to hand over the reins of the government to President Duterte on June 30, we don’t expect a significant change in economic momentum through the end of the year,” she said.

Victorino said the Duterte administration has expressed its intention to maintain current macroeconomic policies with the release of its eight-point economic agenda last May 12.