“The outlook for the Philippines remains sanguine, with GDP (gross domestic product) seen growing at 6.5 percent,” said Johanna Chua, Citigroup managing director and head of Asia Pacific Economic and Market Analysis, in a press briefing on Friday.
Citi’s 2017 forecast — within the government’s 6.5 percent to 7.5 percent target — represents a slowdown from the actual GDP growth of 6.9 percent in 2016.
“What’s really important in the Philippines is getting the fiscal traction more aggressively. So we are actually quite optimistic about tax reform this year. We think it will be passed at the end of the year,” Chua said.
“If there is some sort of dilution from the Department of Finance version, as long as revenue can still incrementally gain going into next year, that gives more fiscal buffer for the government,” she added.
Revenue gains will be used to support the Duterte government’s plans to spend P847 billion this year on infrastructure.
Citi also said that the Philippines, as a heavy exporter of chips, was expected to benefit from an upswing in technological cycle.
It noted that country finished second only to outperformer Vietnam in tech exports in the first half, ahead of Malaysia, Singapore, Thailand, North Korea, China, Korea, and Taiwan.
Citi said the tech sector was very significant driver of overall exports in Asia and is expected to stay resilient despite slower export growth in the region.
Electronic products remain the Philippines’ top export with total receipts of $2.62 billion in June, up 4.4 percent from a year earlier.
“Things bode well for the Philippines, with the government’s Build Build Build program and various socioeconomic programs providing the impetus that will support domestic growth,” said Paul Favila, Citi Markets and Securities Services head.
“Coupled with rising demand from our export markets, especially the chip market, the Philippines can look forward to maintaining its growth pace in the second half of the year, going into 2018, ” he added.
Risks to the Philippine economy are expected to come from tensions between North Korea and the United States, US Federal Reserve rate hikes, and domestic security.
“I think when you have Kim Jong Un and Donald Trump, that is an unpredictable risk but are expecting that it can be contained. But of course, we need to watch it if it does escalate, to the point where military action happens, there is obviously a risk there. And you would end up having strong dollar that would impact the Philippines,” Chua noted.
“Of course security is a big issue that people are watching out for. As long as things are concentrade in Marawi City, I think the perception is that it is a manageable risk,” she added.
The International Monetary Fund earlier this week trimmed its 2017 Philippine growth forecast to 6.6 percent from 6.8 percent but said the country remained an economic standout amid global uncertainties.
Last week, local lender Metropolitan Bank & Trust Co. trimmed its 2017 Philippine growth forecast to 6.6 percent from the previous projection of above 7 percent.
Standard Chartered Bank has also cut its 2017 forecast to 6.5 percent from 6.8 percent, as has Credit Suisse, which is now estimating growth of 6 percent and not 6.4 percent.
The World Bank’s 2017 forecast is also a lower 6.8 percent, from 6.9 percent previously, with the first quarter slowdown cited for the revision.
ANZ Research, meanwhile, has kept its forecast at 6.9 percent, saying overall growth was strong and balanced. Capital Economics noted the economy was likely to continue growing at a solid 6.5 percent, while DBS and IHS Markit maintained their forecasts at 6.4 percent.
First Metro Investment Corp. and the University of Asia and the Pacific also maintained their GDP forecast at 7 percent for the year.
The Asian Development Bank, meanwhile, has raised its forecasts to 6.5 percent for 2017 and 6.7 percent for 2018.