Philippines GDP growth momentum remains strong

Expect Philippines GDP growth to have ticked up to 6.2% (YoY) in 3Q15. Some base effects might have played a part but GDP growth momentum remains pretty strong going into 2016. Export growth came in disappointing in 3Q but the main support for the economy still comes from the domestic front. Private consumption growth is still on track to reach 6% this year while another near double-digit investment (GFCF) growth seems likely. 

Keep a close look on two fronts. Public construction has moderated to 4.3% (YoY) growth in 1H15, after recording a stellar 9.1% last year. Ahead of next year's elections, there are concerns that the pace of project completion may slow down. While this remains to be seen, it is therefore important to see the robust growth in private sector being sustained into next year. Meanwhile, expect growth in the manufacturing sector to have eased further from last year, mostly due to the disappointing export growth in 3Q15. 

The government seems a little overly optimistic to target GDP growth back at 7% in the near-term. At this juncture, average GDP growth for the next 3-5 years may be circa 6% instead. How effective the next government in continuing Aquino's infrastructure overhaul will be the key factor that could propel the economy stronger beyond 2016. 

What remains very clear to us is that external financing risks remain low. While the goods trade balance may have deteriorated, note that the current account will continue to record a surplus, given persistent remittance flows as well as a modest services trade balance. Additionally, foreign reserves still provide 6x coverage of short-term external debt. The Philippines will continue to stand out on this front, amidst concerns over potential capital outflows from the region once the US Fed kicks-off its rate hike cycle.