Philippines economy likely to grow 5.5% in 2016

Philippines recorded 6.3% y/y growth in Q4 2015, more than Barclays' expectations and consensus. The full year 2015 growth was 5.8%, slightly lower than the 6% growth recorded in 2014, and above Barclays' forecast of 5.5%. The economy's Q3 growth rate was slightly revised upward to 6.1% from the earlier estimate of 6%. On a seasonally adjusted basis, Philippines' Q4 2015 GDP grew 2% q/q as government spending spurred growth into a higher gear. Meanwhile, growth of domestic demand reached a 25-year high in Q4 2015, growing by 10.7% y/y.

"Even though today's print was above expectations, we remain comfortable with our 2016 growth forecast of 5.5%, as upside risks from higher government and investment spending are mitigated by downside risks from a deteriorating external economy, which is weighing on export of goods and services", says Barclays.

The economic growth data confirms that the country is on its path of robust growth and low inflation. According to Philippines Economic Planning secretary Baliscan, The economic growth will be higher in 2016 and that 7% growth was achievable.

The Philippines' private consumption continued to be strong, expanding 6.4% y/y in Q4 and 6.2% in the whole of 2015. Government spending rose sharply, growing 17.4% y/y in Q4 2015 and 9.3% for the whole of 2015. Moreover, investment rose considerably. However, overall trade activity was a drag on the economy with imports increasing strongly on par with strong domestic demand, whereas exports were weaker due to slow external growth.

Meanwhile, BSP's next policy move is likely a rate hike; however, the first rate hike is expected to take place in Q2 2017.

"We think the central bank is likely to hike when growth has recovered sufficiently and inflation is high enough to justify an increase in interest rates", says Barclays.

Even if the US Fed hikes rates, the Philippines' robust external position and low level of short-term debt gives the central bank sufficient policy space to keep an accommodative stance.