Phl remains star performer – Nomura

MANILA, Philippines - The Philippines remains a “star performer” among countries in Asia despite the setbacks, brought about by Super Typhoon Yolanda, according to Nomura Securities Global Economic Outlook.

“In our view, the disaster, as tragic as it is, does not alter the economy’s strong fundamentals: the combination of strong growth, a solid external surplus, stable politics and still-positive reform prospects sets the Philippines apart from its regional peers. If anything, we believe the typhoon could be a catalyst for even more infrastructure implementation,” it said.

But Nomura said it has decided to lower its growth forecast for the Philippines to take into consideration the impact of the natural disaster to the Philippine economy.

“We lowered our GDP growth forecast for 2013 to 7.1 percent from 7.3 percent, taking into account the impact of the typhoon in the fourth quarter,” it said.

However, Nomura raised its 2014 GDP growth forecast to 6.7 percent from 6.2 percent, noting that reconstruction will spur economic activity in the months ahead.

It pointed out that there would be a lot of reasons for the Philippine economy to grow even faster next year.

“Financing will not be a constraint as the government has plenty of fiscal space, plus remittances from overseas workers are also rising,” it said.

“As a result, we expect the fiscal deficit to widen only slightly to 2.4 percent of GDP from 2.2 percent in 2013,” it added.

Nomura said investment spending is likely to continue to be a bigger contributor to growth.

“Still, we expect the current account surplus to remain solid, increasing further to four percent of GDP in 2014 from 3.8 percent, led by worker remittances as well as revenues from a booming business processing outsourcing sector,” it said.

In addition, it said it expects FDI (foreign direct investments) inflows will begin to pick up more substantially in 2014, directed into services-related sectors initially and, further out, manufacturing.

“This is being supported by a marked improvement in the business climate, further progress in governance reforms, an investment grade rating and the prospect of liberalization of foreign ownership restrictions in certain sectors,” it said.

The overall balance of payments position, it said, should be able to easily withstand the risk of capital outflows brought on by the start of the US Federal Reserve’s tapering program.

Given the strength of the economy and additional supply-side pressures from the typhoon, Nomura forecasts inflation to rise four percent in 2014 from 2.9 percent, still within the Bangko Sentral ng Pilipinas’ 3-5 percent target.

With the expected rise in inflation, Nomura said it expects the BSP to start hiking its policy rate in the second quarter of 2014, raising it by 100 xxx point to 4.5 percent by end-2014.

“This is relatively aggressive, but we believe BSP will be proactive in containing inflation risks, mindful of the narrowing output gap, loose liquidity conditions and the prospect of a normalization in global monetary policy,” it said.