Japanese financial company Nomura said Thursday it expects the Philippine economy to grow 6.7 percent under the Duterte administration this year.
“We estimate potential growth has risen to 6.2 percent in 2010 to 2016 from 4 percent in the preceding decade. In our base case, we think it could rise further to 6.7 percent throughout the new government’s term until 2022, given highly favorable demographics and the increased pace of physical capital accumulation, which should boost productivity growth,” Nomura said in a report Thursday.
“We reiterate our out-of-consensus 2016 and 2017 GDP growth forecasts of 6.7 percent and 6.3 percent, respectively, but raise our 2018 forecast to 6.5 percent to reflect our view that the foundations for economic resilience have been established and that, despite the recent political noise from President Duterte’s rhetoric, reform progress will likely continue, which bodes well for the longer-term growth outlook,” it said.
It said the size of the country’s workforce could expand over the next three decades, besting even Vietnam and Indonesia. The Philippines currently has a population of 101 million people with a median age of 23.5 years.
Nomura also said the unemployment rate fell substantially to 5.3 percent (the lowest in a decade), which suggested that this demographic profile was slowly turning into an advantage, as more jobs were generated to productively absorb new entrants into the labor force.
“We expect the Duterte government to make more progress than its predecessor on infrastructure spending, as past reforms allow it to hit the ground running and expedite project approvals; and plugging the infrastructure deficit aligns well with the overarching goal of inclusive growth…,” Nomura said.
It said there were early signs of strong adherence of the new administration to the 10-point economic agenda, which stressed policy continuity and more reforms. It said the government would likely make steady progress on cutting red tape and corruption.
Nomura said it saw a high likelihood of comprehensive tax reforms, including cuts to both personal and corporate tax rates, which were presented to Congress.
“All of these changes are positive for FDI inflows, which are already structurally on the rise, helping generate more jobs and supporting external balances,” Nomura said.
Nomura said the narrowing current account surplus and the specter of “twin deficits” would not be a concern because these reflected an increase in investment ratios and the wider fiscal deficits were unlikely to crowd out private investments which, if anything, were also picking up.