The economy has the potential to grow 6.5 percent this year, higher than the revised 5.9 percent in 2015, as the incoming administration of President-elect Rodrigo Duterte is not expected to veer away from the economic reforms of the Aquino administration, Nomura Global Economics said Friday.
“For 2016, we reiterate our GDP growth forecast of 6.5 percent from 5.9 percent in 2015. Our forecast implies a further pickup in the second quarter likely to above 7-percent growth, before moderating slightly as the impact of election-related spending fades,” Nomura said.
“Our baseline view remains that President-elect Duterte’s policy approach will be pragmatic and he is unlikely to reverse the reforms implemented by the outgoing Aquino administration,” it said.
Duterte on May 12 unveiled an eight-point economic agenda expressing continuity of the reforms in the present administration. The other points include increasing infrastructure spending, reducing land-related bottlenecks and attracting more foreign direct spending.
Nomura said the first-quarter growth of 6.9 percent was solid, higher than the upwardly revised 6.5 percent in the quarter ago. It said domestic demand was robust, led by election-related spending and a strong pickup in investment.
“Domestic final demand remained strong, contributing 11.8 percentage points to headline GDP growth from 11.2pp in Q4 2015. This confirms our view that the national elections on May 9 were a boost to already strong domestic demand, rather than acting as a headwind,” it said.
It noted signs of an underlying improvement in the quality of growth after the elections.
The first-quarter performance was significantly stronger than the sluggish 5 percent posted in the same period last year, which was pulled down by the government’s anemic fiscal expenditures.
The administration’s weak spending started in the third quarter of 2014, when the Supreme Court ruled the disbursement acceleration program of the Aquino administration as unconstitutional. The Court reversed the ruling later.
But Nomura said the fiscal support to growth increased in the first three months of 2016. Government spending rose 23 percentyer-on-year in March from 21.9 percent in February, bringing the increase in the first quarter to 17.3 percent from 14.2 percent in the fourth quarter of 2015.
“Excluding interest payments, government spending increased faster in the first quarter at 21.2 percent after 18.4 percent in Q4. Revenue collections, however, disappointed in March, falling by 7.8 percent y-o-y after rising 4.7 percent in February…,” it said.
“… We reiterate our 2016 fiscal deficit forecast of 2 percent of GDP as we expect the fiscal support for growth to continue for the rest of this year despite the political transition,” Nomura said.