SCB says Philippines faces economic challenges in 1st half of 2016

The Philippines faces economic headwinds in the first half of 2016 despite the start of the campaign period for the national elections when consumer spending related to the polls are expected to surge, the United kingdom-based Standard Chartered Bank (SCB) said in a report. Still, SCB said the overall outlook is good in the second half.

In its “Global Focus Economic Outlook 2016: Rebound, retreat, regroup” report SCB said investment and export growth face challenges.

“This may offset other positives in the domestic economy in 2016. We think the balance of risks to growth is tilted to the downside in the first half and the upside in second half,” SCB said.

The prices of consumer goods are expected to maintain moderate increases, as inflation is likely to move gradually toward the lower end of the 2-percent-growth target in 2016, it said. “We expect the Bangko Sentral ng Pilipinas (BSP) to keep its policy stance unchanged, but it may turn more dovish if growth or inflation significantly underperforms its expectations,” SCB added.

It noted that while the manufacturing outlook is promising over the medium term, especially for machinery and equipment, lower demand for food and soft commodities pose near-term headwinds.

With the country focused on the general election in May 2016, the SCB said the manufacturing, government services, private services, and transport, communications and storage sectors are expected to benefit in the lead-up to the polls.

The economy will be boosted by increased demand for printing and publishing, media services, advertising, and public administration spending. Increased demand in these sectors may also provide secondary support to other parts of the economy, SCB said.

“This may provide a 0.1 to 0.3 percentage-point boost to 2016 GDP growth,” SCB said. SCB expects the services sector, particularly the business-process outsourcing (BPO) business, to remain an important growth driver.

“Strong services exports should provide a cushion against lackluster demand for merchandise exports,” it added.

SCB noted that exports and investment have been the “swing factors” for growth in the past decade in the country but that external demand, particularly from China, Japan and the Association of Southeast Asian Nations (Asean), remains persistently weak.

SCB said merchandise exports fell 4.3 percent from a year ago, compared with a 10.2-percent increase last year.

It noted, however, that in peso terms, exports fell a smaller 2.7 percent until the third quarter.

“The boost from the weaker currency was only marginal, given the Philippines’ relative resilience. Weak export growth may continue in 2016 if global growth remains modest,” it added.

“Investment growth is likely to stabilize at a moderate level in 2016. Approved investment amounts have been below 2013 and 2014 levels since the start of this year. Slug- gish global growth may also prompt foreign investors to delay investment,” SCB said.

It added, however, that the Philippines remained an attractive destination for foreign direct investments (FDI), “given its favorable labor dynamics and potential for development.”

“Approved investments are concentrated in the utilities, manufacturing and business services sectors, boding well for growth in these sectors,” SBC said.

It added that the solid labor market should support household consumption, along with election-related spending.

“Employment growth averaged 1.1 percent in the first half, slightly better than the 0.9-percent increase a year ago. While the unemployment rate inched up in the third quarter compared with the previous three months, it is still lower than in past years,” it said.

While growth in overseas remittances has slowed, it remains positive in local-currency terms, which should support the outlook for household consumption and domestic growth, SCB added.