Credit Suisse lowers Philippine growth outlook

MANILA, Philippines – Credit Suisse has lowered its economic growth forecast for the Philippines but still expects the country’s gross domestic product (GDP) expanding above six percent this year.

In a fixed income research entitled “Philippines: consumption to lead GDP strength,” Credit Suisse economist Michael Wan said the country’s economic growth would continue to surprise on the upside despite the downward revision.

“We continue to expect GDP to surprise on the upside in 2016. We have tweaked our 2016 GDP forecast down to 6.2 percent from 6.4 percent previously. This still puts us very comfortably above the consensus of 5.9 percent,” Wan said.

Part of the bank’s forecast change, he explained, reflects an earlier-than-anticipated boost to government and public investment spending last year, setting a higher base for 2016.

Wan said this year’s GDP expansion would be fuelled by private consumption which is expected to grow by 6.5 percent instead of the earlier projection of 6.2 percent and the market consensus of 5.6 percent.

“The stronger growth will likely be driven by strong private consumption, together with better exports and agriculture production: We remain positive on private consumption in 2016,” he said.

Wan said the 10 percent rise in salaries of government workers over the next four years under the new Salary Standardization Law would translate to robust private spending.

“This will provide another fillip to consumption spending, on top of the lagged impact of lower oil prices that we have consistently highlighted,” Wan said.

Credit Suisse said El Niño is expected to have a moderate impact on the country’s economic growth.

“While there remains some uncertainty surrounding the impact of El Niño on food and rice prices, our base case is for a moderate impact given still ample supply of global food stocks and also the government’s efforts to import more rice,” he said.

He added agriculture production would rise on the back of the fading of drought impact this year, while exports would likely improve from an unusually weak 2015.

The investment bank sees inflation accelerating to 2.4 percent this year after easing to 1.4 percent last year from 4.1 percent in 2014 due to stable food prices and cheaper utility rates amid lower oil prices.

Wan said the Bangko Sentral ng Pilipinas (BSP) is likely to push up market rates but only due to the implementation of the interest rate corridor (IRC) system in the second quarter of the year.

“With inflation likely remaining comfortably within the central bank’s inflation target of two to four percent in 2016, we don’t see any strong impetus for the central bank to move on rates. Nonetheless, we could see some effective policy tightening in 2016 due to the implementation of the interest rate corridor system,” he added.