Nomura upgrades PH growth outlook to 6.9%

Japanese financial holding company Nomura said it expects the Philippine economy to grow near 7 percent annually over the next two years, on the back of strong exports, global recovery and robust domestic demand.

Nomura said in a report Thursday it raised slightly its 2018 growth forecast for the Philippines to 6.9 percent from an earlier projection of 6.8 percent on brighter prospects of the economy. Nomura said GDP growth could even pick up further to 7.1 percent in 2019.

“We still view the growth outlook as solid, and raise our 2018 GDP growth forecast slightly to 6.9 percent from 6.8 percent earlier and from 6.7 percent in 2017. We also expect growth to rise further to 7.1 percent in 2019,” it said.

“A pick-up in global growth and the tech cycle, which looks like it can remain on an upswing longer than we initially anticipated, should supplement already strong domestic demand conditions,” it said.

Nomura said electronics exports, mostly semiconductors, accounted for the about 50 percent of total goods exports and, while high in import content, they contributed about 1.4 percentage points to headline gross domestic product growth in 2017 on a net basis.

“For next year, despite a likely increase in political noise, we expect the government’s focus on reforms to remain strong, alongside its drive to raise infrastructure spending further, which will be boosted by the reconstruction in Mindanao following the prolonged anti-terrorism military operations in Marawi,” Nomura said.

It said the implementation of the first package of tax reforms at the beginning of 2018 would not only provide the government with significant revenues that would  be earmarked for infrastructure and social spending, but it should also boost disposable incomes of the middle class via substantial personal income tax cuts.

Nomura said the Bangko Sentral ng Pilipinas might be compelled to raise the policy rate to 4 percent from the present 3 percent in 2018 because of accelerating inflation triggered by higher oil prices and the impact of tax reform.

“We revise up our 2018 CPI inflation forecast to 4.3 percent from 3.9 percent, which would breach the 2 to 4 percent target of BSP. This forecast is partly driven by our new 2018 oil price assumption, combined with the impact of tax reform [assuming the House version is adopted]…,” Nomura said.

“We think BSP will not be able to look through the risk of headline inflation breaching its target in 2018. As a result, we now expect BSP to hike its policy rate by a total 100bp to 4 percent at a rate of one 25 bp hike per quarter,” it said.

“We think demand-side pressures are even stronger today than in 2014 and thus inflation expectations are also likely to accelerate amid supply-side increases from oil prices and tax reforms,” Nomura said.

The Philippine economy grew 6.9 percent in the third quarter, faster than the expectations of most economists, on the back of strong performance of industry and services sectors, higher fiscal spending, robust domestic demand and investments.

This brought the average growth in the first three quarters to 6.7 percent, which is within the official target range of 6.5 percent to 7.5 percent for 2017.

Topics: Nomura , Philippine economy
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