Philippine economic momentum remains strong, growth likely to slow in 2017

Economic momentum of Philippines continues to be solid amid elections. The country’s overall business outlook for Q1 and Q2 continues to be high, according to ANZ. In February, bank lending grew 15.7% y/y. This shows that there is sufficient private investment in the pipeline, added ANZ.

“We maintain our GDP growth forecasts of 6.1% in 2016, before a possible slowdown to 5.8% in 2017”, says ANZ.

In 2015, remittance grew 4.6% y/y, but domestic consumption continues to be above-trend growth. However, apart from total remittance intake of USD25.8bn, the country also registered USD19.7bn in estimated receipts from the flourishing business process outsourcing sector. Bank leverage still does not impede consumer spending. Last year, current account continued to be in surplus, 2.9% of the GDP, while the balance of payments’ surplus narrowed.

Nonetheless, the broad coverage of money laundering investigations that involves one of the big banks of the country might hamper the remittances’ outlook, noted ANZ. Many foreign banks are said to have ended ties with remittance operators that are serving Overseas Filipinos. In the banking sector, measures of asset quality, capitalization, and growth of deposits and assets show structural strength. Meanwhile, inflation in the Philippines is expected to exceed the average inflation target of 2%-4% set by the central bank through 2017, noted ANZ.

“We recently revised our inflation forecast to 1.9% y/y in 2016 before rising to 3.0% in 2017 (from 2.9% and 3.4% respectively)”, added ANZ.

Meanwhile, the central bank is now likely to delay tightening of monetary policy by 25 bps to late Q4, according to ANZ.