2Q16 GDP grew 7%

PHILIPPINES - In Brief 18 Aug 2016 by Romeo Bernardo
Government announced today that the economy grew 7% in 2Q16, in line with what we expected. The economy’s growth performance may be traced to the following factors: Investments in a broad range of durable equipment (+43%), particularly road vehicles; Consumption (+7.3%), boosted by election spending, relatively benign inflation and remittance growth; Public spending, also election-related, both for current consumption (13%) and construction investments (+28%); Pulling down growth was net exports, with the trade in goods deficit reaching 13% of GDP in nominal peso terms (6% after adjusting for price effects); Supply-side growth was mainly driven by services (8.4%), particularly retail trade and BPO services, as well as manufacturing (6.3%) and construction (11%); agricultural output continued to decline (-2.1%) due to adverse weather.We are maintaining our higher-than-consensus outlook for GDP growth – 6.5% for 2016 and 6.6% for 2017. As noted in our quarterly outlook last week, we expect economic growth to moderate in 2H16 from the 6.9% average in 1H16 due to the disappearance of one-offs from election spending, the projected continuing weakness in global demand, plus the pullback in public spending due to pre-election frontloading of expenditures and “adjustment hiccups” for the new government. Ahead, the key real sector developments to watch out for are: (a) spending habits of the new government, particularly whether it could ramp up infrastructure investments; (b) remittance growth, given economic uncertainties in the Middle East; and (c) how the government’s war on drugs would affect investor sentiments, especially FDI flows.

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