Economy seen growing over 7% in 2019

MANILA, Philippines — Nomura Securities Ltd. expects the Philippines to book faster economic expansion with gross domestic product (GDP) growing above seven percent next year amid the election-related spending boost.

In its Asia 2019 Outlook, Nomura said the country’s GDP growth would pick up to 7.1 percent versus the market consensus of 6.4 percent in 2019 from the projected 6.3 percent this year.

“We expect growth to accelerate in 2019, led by continued strength in domestic demand – which should be boosted further by the elections – more than offsetting weaker electronics exports,” Nomura said.

Nomura sees GDP expansion accelerating to 6.8 percent in the first quarter and 7.1 percent in the second quarter of next year from the projected 6.5 percent in the fourth quarter.

It added the growth would ease to 6.9 percent in the third quarter before rebounding strongly to 7.3 percent in the fourth quarter.

Nomura said exports would remain a drag given slower global growth and the technology downcycle.

While electronics exports make up around 60 percent of total goods exports, Nomura said import content is relatively high while Philippine value-added is low.

Any drag will be more than offset by still robust domestic demand, particularly an expected surge in investment spending that should receive added near-term impetus as public infrastructure projects including at the local level are pushed for completion ahead of the elections.

Nomura said the national government would continue to make progress in its multi-year Build Build Build program.

“We expect private investment spending to remain robust, with some of the next big-ticket projects implemented under public-private partnerships. In addition, the resultant boost to medium-term growth prospects and productivity should keep business confidence elevated, crowding in private investment further, as has been the case over the last few years,” it said.

Nomura sees private consumption picking up to 5.8 percent in 2019 and six percent in 2020 from the projected 6.3 percent this year.

“We expect private consumption, which has surprised to the downside this year, to stage a recovery, helped by the elections but also a reversal of some temporary, policy induced factors that hurt consumption, such as higher excise taxes on tobacco, sugary beverages, as well as fuel and cars,” it said.

Nomura also sees the consumer price index (CPI) falling within the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) at 3.7 percent in 2019 and 3.2 percent in 2020 from 5.2 percent this year.

“We also expect headline inflation to fall, supporting purchasing power along with this year’s personal income tax cuts. We now see CPI inflation heading back to the official target in 2019, implying that BSP is at the end of its hiking cycle,” it said.

The BSP’s Monetary Board raised interest rates by 175 basis points in five straight rate-setting meetings since May this year to rein in inflation, before taking a pause from its tightening cycle in its meeting last Thursday as inflation eased to a four-month low of six percent in November from a near-decade high of 6.7 percent in October.

 Nomura sees the BSP keeping interest rates steady in 2019 and 2020.