DBS sees 2016 GDP at 6.1%

MANILA, Philippines - Singapore-based DBS Bank Ltd sees the country’s economic growth picking up this year due largely to strong private consumption.

DBS economist Gundy Cahyadi said the gross domestic product (GDP) growth of the Philippines is expected to accelerate to 6.1 percent this year after easing to 5.7 percent last year from 6.1 percent in 2014.

“Strong underlying demand will keep private consumption growth robust at 6.1 percent in 2016. Recent data is encouraging. Non-food consumption continues to lead overall consumption growth,” he said.

Cahyadi said the anticipated fall in crops production may weigh on spending in the rural areas early this year.

Cahyadi said the slowdown in the agricultural output would likely be more than offset by robust foreign remittance flows as well as the positive spillover impact from the political campaigns ahead of the presidential and national elections.

Cahyadi said public investment is growing twice as fast as the average pace seen in the last 10 years.

“Even after penciling some easing in early-2016, presumably amidst the election, we reckon that full-year investment growth would still come in a strong 8.8 percent,” he said.

Amid the robust domestic demand, DBS said the Bangko Sentral ng Pilipinas (BSP) is likely to keep interest rates unchanged.

“Any monetary policy implication is likely to be limited for now. While various officials of the central bank have continued to voice concerns over the potential of capital outflows this year, external financing risks remain manageable,” DBS said.

The government is set to announce the country’s 2015 GDP growth figure this week. Economic managers penned a GDP growth target of between seven and eight percent this year.

“If anything, this week’s GDP report is probably the key data to watch. Any sharp disappointment on the GDP growth front may tilt the balance toward a possible monetary policy loosening going forward,” the investment bank said.

DBS pointed out the country’s foreign reserves coverage of short-term external debt is still running above six times.

The country’s gross international reserves (GIR) increased by $440 million to hit $80.61 in December from $80.17 billion in November. The GIR level is equivalent to 5.5 times the country’s short-term external debt based on original maturity and four times based on residual maturity.