Bank economists see faster GDP growth in Q1

MANILA, Philippines – Top economists from Ayala-led Bank of the Philippine Islands (BPI) and Dutch financial giant ING Bank see the country’s economic growth accelerating close to seven percent in the first quarter.

BPI associate economist Nicholas Antonio Mapa said the country’s gross domestic product (GDP) likely grew 6.9 percent in the first quarter, up from 6.3 percent in the fourth quarter of last year due to improved government spending.

“The swan song of the Aquino administration will undoubtedly be a good one with first quarter GDP set to easily breach the six percent handle, helping the Philippines regain status of top dog in the region,” he said.

Mapa pointed out strong consumption and improved government spending fueled the strong growth from January to March this year.

“A low base in the first quarter 2015 coupled with still robust consumption and private investment momentum will carry the Philippine economy to roughly 6.9 percent first quarter GDP,” Mapa said.

Mapa said government spending is also expected to remain better-than-previous year’s levels, which may offset the chronic trade deficit.

On the income account, agriculture contracted by roughly 4.5 percent in the first quarter due to the harsh El Niño conditions.

Given its 10 percent contribution to overall GDP, Mapa explained the services sector is expected to make up for the contraction in farm output as seen in the healthy first quarter corporate earnings.

“Philippine growth is expected to remain robust on torrid consumption due to the demographic dividend and higher incomes due to years of accelerated growth,” the economist said.

For his part, ING Bank Manila senior economist Joey Cuyegkeng said the country’s GDP is likely to expand 6.6 percent in the first quarter.

“Strong domestic demand, sustained strong government spending also for infrastructure, favorable private sector investment, resilient structural inflows and election spending are expected to more than offset export’s and agriculture’s weak performance,” Cuyegkeng said.

Cuyegkeng pointed out the country’s GDP growth would accelerate to 6.2 percent this year after slowing down to 5.8 percent last year from 6.1 percent in 2014 due to weak global demand and lack of government spending.

According to him, the eight-point economic program of President elect Rody Duterte includes macro-economic policy continuity while targeting an implementation of an infrastructure spending equivalent to five percent of GDP and reforming the income tax structure and raising or doubling salaries of law enforcement personnel and the military.

Doubling the salaries of the national police and the military would be equivalent to another 0.4 to .05 percent of GDP based on the lower end of the GDP assumption of government.

Reforming the income tax structure and allow for greater exemptions or higher income tax brackets at lower income tax rates would mean an additional impact on the deficit of 0.5 percent of GDP.

While continuity of macroeconomic policies comforts investors in the financial markets, Cuyegkeng said the new government still needs to ascertain its fiscal program.

“For now, we believe that government (the current and the new administration) would still outperform the 2016 fiscal program. We also find comfort that the cash position of the government remains strong and would unlikely require financing above the 2016 fiscal program,” he said.