United Kingdom firm forecasts Philippine GDP to rise 6.5% in next 2 yrs

MANILA, Philippines - London-based Capital Economics Ltd. sees Philippine economic growth picking up over the next two years after slowing down this year on the back of reforms undertaken by the Aquino administration.

Daniel Martin, the bank’s senior Asia economist, said the country’s gross domestic product (GDP) growth would accelerate to 6.5 percent in 2016 and 2017 from the projected 5.7 percent this year despite a change in administration next year.

 “The medium term outlook is obviously dependent on the choice and performance of the next president,” Martin said.

“However, it would take a spell of very bad governance to undo the progress made under Aquino, and we expect the economy to continue growing strongly,” he added.

 He pointed out improvements to the business environment under President Aquino would underpin healthy growth even after he leaves office next year.

 Economic expansion accelerated to six percent in the third quarter of the year from the revised 5.8 percent in the second quarter. The uptick was also faster than the 5.5 percent posted in the same period last year.

The actual third-quarter figure, Martin said, fell short of Capital Economics’ 6.2-percent forecast for the period.  

“The disappointment was tempered by an upward revision to second quarter GDP growth…which means the economy is still on track to grow by around 5.7 percent in 2015, despite a poor start to the year,” he explained.

 From January to September, the economy grew 5.6 percent, down from 7.1 percent last year. It is also far from the official seven- to eight-percent target for the year, which the government had already conceded will not be achieved.

Instead, economic managers have set their sights to at least six-percent GDP growth by year-end.

Martin said the jump in government spending – up 17.4 percent in the third quarter—is a positive sign of recovery in disbursements after being disrupted Supreme Court rulings on the congressional “pork barrel” and the administration’s Disbursement Acceleration Program (DAP) that re-allocated public funds.

Both measures were declared unconstitutional by the high court in 2013.

“Given this, the sharp year-on-year rebound will be a one-off, but efforts to resolve other disbursement issues are likely to rise ahead of the presidential election in May,” Martin said.

Capital Economics also noted fixed investment growth also picked up to 9.3 percent in the third quarter from 8.9 percent in the same quarter last year.

“Uncertainty over who will succeed Aquino could dampen investment appetite in the short term. But any weakness is likely to prove short-lived, given that interest rates are likely to be kept low for the foreseeable future and that rising costs in China are increasing the attractiveness of the country as a manufacturing base,” Martin said.