Barclays keeps Philippine growth target despite political risks

MANILA, Philippines - Philippine economic growth should accelerate this year despite increasing political risks ahead of the 2016 polls, UK-based Barclays said.

In its latest Emerging Markets Quarterly, the bank kept its 6.5-percent economic growth target for 2015. The figure is faster than the 6.1-percent growth recorded last year but short of the government’s seven- to eight-percent target for this year.

“Growth momentum is solid, and inflationary pressures have dissipated. Fiscal spending has started normalizing, and infrastructure bottlenecks have eased,” Barclays said.

The bank said it sees three key growth drivers for this year, led by the lower oil prices which should support the country’s external balances and boost domestic consumption.

“The pass-through of lower oil prices into retail pump prices has been improving, and this should give a positive shock to disposable incomes,” Barclays said.

“We expect private consumption growth to improve in 2015 relative to 2014, and this pre-empts any election-related spending, which should have a larger impact in 2016,” the bank said.

Barclays said another key driver for growth this year would be the roll-out of infrastructure projects under the Aquino administration.

“A large number of projects undertaken by the Aquino administration in the early years of its tenure are approaching completion. The completion of projects is likely to boost productivity and domestic activity,” the bank said.

At the same time, the acceleration in public spending should also give a boost to domestic economic activity, Barclays said.

“Last year, subdued fiscal spending was a drag on growth. The government’s considerable efforts to increase outlays ahead of the 2016 election appear to be bearing fruit,” Barclays said.

Domestic inflation is expected to settle within the Bangko Sentral ng PIlipinas’ two to four percent target, Barclays said.

“Even with the moderation in price pressures, BSP is unlikely to join the easing herd within Asian central banks,” Barclays said.

“Governor Tetangco has clearly stated that the Philippines does not need any ‘monetary stimulus’, with current policy settings appropriate given the robust growth backdrop, and there is ample liquidity to support future economic activity,” the bank pointed out.