GDP growth accelerates

PHILIPPINES - In Brief 19 May 2016 by Romeo Bernardo

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Government today announced that the economy grew 6.9% in 1Q16, higher than the median analyst forecast of 6.5%. As expected, election spending was a key growth driver pushing up government consumption (+10%) and construction investment (+40%) as well as household expenditures (+7%). The latter, comprising 70% of demand side GDP, benefited as well from resilient remittance growth (+6% in real peso terms) and low oil prices that kept inflation subdued during the period. There was also a notable 26% increase in fixed investments, traced largely to a 37% jump in durable equipment. This contributed to the double-digit expansion in imports that kept the trade balance in deficit. The production side revealed El Nino taking a significant toll on crop output, but the impact on the economy was mitigated by faster growth in industry and services. We are adjusting our full year growth outlook to 6.3% (from 6%) reflecting the better than expected 1Q16 performance that will likely be repeated in 2Q16. We are closely monitoring two developments that may impact our GDP forecast for this and next year. One is remittance growth, which has been stronger than anticipated, albeit quite erratic on a monthly basis. We are getting feedback from people on the ground of increased demand for nurses and domestic helpers in the Middle East, which we have to validate as data are released. The other is the new administration’s ability to deliver accelerated infrastructure spending from 2H16 onwards. It is early days and we will have to see how quickly the incoming economic team learns the ropes.