MANILA, Philippines - New York-based financial powerhouse, JPMorgan Chase & Co. has raised its growth outlook for the Philippine economy for 2015 to 6.4 percent this year from its earlier forecast of 5.4 percent due to the stronger-than-expected fourth quarter 2014 results.
The government targets a seven- to eight-percent growth range for both 2015 and 2016.
JPMorgan chief Asean economist Sin Beng Ong said the 6.9-percent expansion in the fourth quarter of 2014 lifted the full-year gross domestic product (GDP) growth in 2014 to 6.1 percent.
“While we expect some technical payback for the very strong fourth quarter 2014 performance in the first three months of 2015, the underlying growth trend remains firm,” he said.
The JPMorgan economist said the positive growth dynamics reflects several factors: a palpable shift in business sentiment, reflected in the business sentiment surveys and private investment; historically low domestic interest rates and accommodative credit conditions; and a lift in exports and easing inflation on the back of lower energy prices.
He said low oil prices add a significant buffer, providing monetary policy flexibility since the Philippines is a net importer of oil products.
All these factors should add to firmer domestic demand, which should also be complemented by the PPP (Public-Private Partnership) infrastructure spending, he added.
He said while low oil prices should lift imports and narrow the current account surplus, this is more than offset by the $7.4 billion (2.5 percent of GDP) windfall that comes from the drop in oil prices.
Low oil prices provides a material buffer to the external balances and inflation likely to come in well below the two to four percent inflation target range in the third quarter of 2015.
It would yield significantly positive real policy rates, thereby a likelihood of easier monetary policy.
“Indeed, capital outflows, proxied by changes in foreign currency deposits, appear to have eased since late 2014 and could further bolster the balance of payments surplus,” the JPMorgan economist said.
JPMorgan sees a 25 basis points cut in the overnight and special deposit account rate in the second semester this year, which respectively reflects both easing inflation and moderating risks of capital outflows as real onshore rates rise.
JPMorgan, however, warned against complacency on port congestion or bottlenecks that plagued imports in early 2014.
It said port congestion had not fully normalized, and anecdotal evidence suggests that the backlogs remain. “Whether this will constrain growth this year remains to be seen,” the financial giant added.