With surge in imports: GDP growth likely hit 7% in H1, says DBS

MANILA, Philippines - Singapore-based DBS Bank Ltd. expects the Philippine economy to grow seven percent in the first half as imports surged 39.3 percent last year.

DBS forecasts gross domestic product (GDP) growth for the second quarter to exceed initial estimate of 5.8 percent after the strong surge in imports last May.

“Yet, going by the May imports data, second quarter GDP growth is set to be well above our initial estimate of 5.8 percent. If import growth was to come in robust again in June, seven percent may not be out of reach after all,” it added.

The investment bank said the country’s GDP expansion likely averaged seven percent in the first six months of the year.

“Given that the surge in domestic demand in first quarter 2016 seems to be a one-off frontloading ahead of the elections, we had thought that seven percent GDP growth in first half 2016 to be highly unlikely,” DBS added.

According to DBS, the frontloading of investments likely continued in second quarter.

 “On a year-on-year basis, imports of capital goods doubled in May. This suggests investment growth might have been closer to 20 percent yet again in second quarter after the 25.6 percent recorded in first quarter,” it said.

However, the investment bank said it remains to be seen whether or not this robust growth in imports would be sustained.

“The most likely scenario is still to see imports normalizing in second half 2016. Full-year import growth may be a high single-digit, but we don’t expect it to be anywhere close to the 14 percent seen last year,” DBS said.

DBS expects the economy to expand 6.3 percent this year from the revised 5.9 percent last year.

The country’s GDP growth picked up to 6.9 percent in the first quarter of the year from 6.5 percent in the fourth quarter of the year on the back of robust private consumption and strong fixed capital investments.

“There are upside risks to our full-year GDP growth of 6.3 percent this year. This is especially true, given the new administration is set to accelerate fiscal spending ahead. It is important, however, to monitor the sentiment of the private sector under the new government,” DBS said.

The Duterte administration has penned a lower GDP growth of six to seven percent instead of 6.8 to 7.8 percent as it intends to spend more on infrastructure.

The new government has raised the budget deficit ceiling to three percent of GDP instead of two percent of GDP under the administration of former President Benigno Aquino III.