Deutsche Bank hikes Phl growth forecast to 6.2%

MANILA, Philippines - Deutsche Bank AG has raised its economic growth target for the Philippines on the back of a stronger-than-expected rebound in exports in emerging market economies in Asia.

In its latest Asia Economic Monthly report titled “As Good As it Gets?,” the investment bank upgraded the country’s gross domestic product (GDP) growth forecast to 6.2 percent from the original target of 5.8 percent this year and to 6.5 percent instead of six percent for next year.

“We are bumping up our growth outlook 40 basis points to 6.2 percent in 2017 and 50 basis points to 6.5 percent in 2018 on account of a stronger-than-expected exports rebound,” Deutsche Bank said.

It pointed out the sustained economic recovery in the US should remain supportive of Asia’s exports, barring any trade protectionist measures by the Trump administration.

The investment bank explained a major turnaround in exports has ensued in the Philippines, alongside the rest of Asia.

After what seemed to be an unending period of falling revenues from May 2015 through August 2016, export earnings finally reverted to expansion territory, growing seven percent in the first five months.

Exports surged 24 percent in January amid the acceleration in demand from China as well as the European and US markets.

“We have been surprised by the strength of the exports turnaround across the region. While partly explained by a low base, this exports rebound is poised to be sustained for a couple more months as suggested by more recent PMI survey readings which point to stronger economic activities in the advanced economies,” it said.

Meanwhile, Deutsche Bank said the recent slowdown in imports is a reflection of domestic demand normalization past elections, with growth in fixed capital formation still way above than as dictated by recent quarters’ business sentiment readings.

However, the sudden 11 percent drop in capital goods imports in January alongside the downtrend in business sentiment and year-on-year declines in investment pledges in the past two quarters, under the new Duterte and Trump administrations, warns of a softer private sector investment outturn going forward.

The investment bank said the economy can in principle count on a public sector infrastructure push to counter the downside from private investments, given ample fiscal space and China and Japan’s recent investment and credit pledges.

Deutsche Bank also sees inflation picking up to 3.3 percent for this year and next year from 1.8 percent last year.

Economic managers penciled a GDP growth of between 6.5 and 7.5 percent this year from last year’s revised 6.9 percent amid robust domestic demand and higher investments.

The Bangko Sentral ng Pilipinas (BSP), on the other hand, has set an inflation target of two to four percent between 2017 and 2020.