Philippines back to 6% GDP growth in 2016

Philippines's 4Q15 GDP growth came in at 6.3% (YoY), above the expectations for a 5.7% print. That brought full-year 2015 GDP growth to 5.8%, a moderation from the 6.1% chalked in fixed capital formation (GFCF) growth jumped 22.5% (YoY) in 4Q15. Fullyear investment growth was a solid 14%, well above the expectations for a 9.3% showing. Large swings in investment growth are typically driven by construction, which tends to be patchy throughout the year. 

The main driver in 4Q15 was the 20% jump in durable equipment purchases. This could only be a good sign for this year's outlook. That imports of capital goods continue to grow at double-digit pace also reinforces the strong investment growth story. 

Private consumption growth also came in robust at 6.4% (YoY) in the period, bringing the full-year number to 6.2%. Besides 2015, 2012 was the only year in the past decade when private consumption growth exceeded 6%. Interestingly, 2015 saw a 0.3% contraction in the agriculture sector. It seems that the impact on private consumption growth is likely to be limited, even if the agriculture sector may remain under pressure in early-2016. Discretionary spending remains strong in the economy, indicated by how non-food consumption continues to lead overall consumption. Another 6% consumption growth is on the cards this year. 

There is a chance that 2016 GDP growth may come in even faster, given the strong momentum in 4Q15. It is important to watch for 1Q16 numbers, however, given the election impact. While the election campaigning process may provide a boost to consumption growth, the pace of investment growth may also ease ahead of the elections. Indeed, it would be hardly surprising if the surge in investment last quarter turns out to be partly a front-loading before an election year. 

The impact on monetary policy is clear. Bangko Sentral ng Pilipinas (BSP) maintains its cautious approach for now, amid concerns over the global economy. But with domestic demand staying robust and continuing to support the overall GDP growth outlook, there is no reason why the BSP should turn dovish anytime soon.

"We see enough positives in the data and maintain our 2016 GDP growth forecast at 6.1%", says DBS Group Research.