Stronger Philippines GDP growth likely in 2016

Philippines's 4Q15 GDP data report this week is expected to confirm that GDP growth has moderated to 5.7% in 2015. The focus will be on the pace of government spending in the quarter, given some worries that government projects may slow ahead of this year's presidential elections. Considering that global growth concerns have been dominant so far this year, markets may also pay attention to how export growth has fared in 4Q15. 

The data is expected to indicate that domestic demand continues to spur overall GDP growth. The public investment growth tends to slow during an election year, it is currently trending twice as fast as the average of the past 10 years. More importantly, the private consumption remains robust, anchored by remittance flows. And the recent slide in oil prices is also likely to be a positive, considering its disinflationary impact. 

"Recent data support our view that GDP growth is likely to tick up to 6.1% this year. Growth in private sector construction remains modest, circa 8% in 2015. Investment in durable equipment, including industrial machinery, stayed strong, also circa 8%", says DBS Group Research.

The current GDP growth trajectory still warrants a tighter policy going forward. That said, Bangko Sentral ng Pilipinas (BSP) is unlikely to make any policy changes before the new interest rate corridor is introduced in 2Q16. Additionally, inflation remains soft, giving no pressure to the BSP to further normalize its monetary policy.