The Philippine economy is likely to continue growing at a faster pace than regional peers, as higher investments complement resilient domestic demand, American bank JP Morgan Chase said.
Nur Raisah Rasid, Singapore-based economist at JP Morgan Chase, said in a research note dated Sept. 9 that despite lackluster external demand, the Philippine economy remained resilient and is expected to outperform regional growth.
As such, JP Morgan has revised its 2016 growth forecast for the country to 6.4 percent from 6 percent, taking into account the strong second quarter performance.
In the second quarter, the country’s gross domestic product (GDP) grew by 7 percent year-on-year, beating the market consensus of 6.6 percent. This also brought six-month growth to 6.9 percent, making it an outperformer in the Asian region.
“The resilience stems from the strength of domestic demand, driven notably by fixed investment,” Rasid said.
“Although the growth outlook remains upbeat, the consequence has been a narrowing of the current account surplus. The bulk of the recent surge in imports lay in capital goods, particularly telecommunications and power equipment,” the economist said.
Rasid said a material increase in fiscal and infrastructure spending would likely boost business sentiment which, in turn, should bolster equipment investment, which had been the main driver of growth over the past few quarters. But while this trend is encouraging for growth prospects, a further imports surge would likely reduce the current account surplus further, he said.
Meanwhile, the economist noted that cross-border financial flows had stabilized after several particularly volatile years reflecting sharp swings in portfolio and other investment flows.
“The recent strength of inward portfolio investment, concentrated in debt securities, has been offset by weakness in other investments, mainly in the form of loans. The net impact of these developments is stability in the financial account,” Rasid said.
“With that said, we expect a small surplus in the overall balance of payments (BOP) this year, reflecting a stable financial account and a narrowing of the current account surplus,” he added.
For the fifth straight month, the Philippines posted a BOP surplus of $848 million in July, bringing the seven-month BOP surplus to $848 million.
The BOP refers to the country’s economic transactions with the rest of the world, encompassing trading of goods, services and income, financial claims and liabilities as well as transfers such as gifts. The current account includes transactions in goods, services, investment income and current transfers.