JAPANESE financial services group Nomura raised its gross domestic product growth forecasts for the Philippines this year and in 2018 on the expected recovery of exports and higher fiscal spending, especially on infrastructure.
“We upgrade our GDP growth forecasts to 6.7 percent and 6.8 percent for 2017 and 2018, from 6.3 percent and 6.5 percent, respectively, taking into account the improvement in electronics exports,” Nomura said in a report over the weekend.
“In addition, we now expect stronger investment spending as the public sector is clearly pushing the implementation of more projects which is likely to crowd in private investment spending…,” it said.
Nomura said electronics exports were “catching up” with the regional upcycle, complementing the already strong domestic demand. Nomura noted a few signs that the Philippines was benefitting from the electronics export recovery until January 2017, when electronics export growth jumped 10.4 percent year-on-year following a 1.9-percent decline in the last quarter of 2016.
Exports growth accelerated to 15.9 percent in February, driven by a surge in volumes while price effects have been somewhat more subdued than in other Asean countries.
“By country, demand for Philippine exports seems to have picked up from all key trading partners so far this year, with the exception of Japan,” Nomura said.
But Nomura said as more than 70 percent of electronics exports were in semiconductors and other components, a reversal of the current pickup in the tech cycle could create a drag on headline export growth. Total electronics exports comprise over 50 percent of total goods shipments.
It also said exports of electronics, machinery and equipment (along with their business process outsourcing sector) could be vulnerable to protectionist policies from the United States.
However, Nomura said as exports of goods and services accounted for only 26.5 percent of the GDP and domestic demand remained fairly strong, the economy was relatively insulated from external factors.
“Although we forecast a moderation of the tech cycle in the second half of 2017 and a sharper downturn in 2018, we believe the economy will be relatively resilient, as the main engines of growth—private consumption and investment spending—continue to power on,” Nomura said.
Nomura maintained its current account surplus forecast of 0.5 percent of GDP this year but reduced it to 0.2 percent from 0.4 percent next year.
Nomura added with investment and private consumption being the main drivers of growth, the peso was less vulnerable from the expected slowdown in Asia’s exports in the second half of 2017 and beyond.
It said many global risk events, corporate US dollar hedging demand and growing investor concern over Bangko Sentral being behind the curve on inflation, as well as the retirement of Bangko Sentral Governor Amando Tetangco Jr. on July 2, 2017, could add to the weakness of the local currency.