MANILA — ANZ Research on Tuesday said the domestic demand in the Philippines remains on a solid footing despite the Gross Domestic Product (GDP) missing market estimates for the last quarter of 2017.
ANZ Research noted this after the Philippine Statistics Authority (PSA) released the GDP report, saying that the Philippine economy grew 6.7 percent for the full-year of 2017, which was within the government’s 6.5-7.5 percent target last year.
It also reported that the economy grew 6.6 percent in the last quarter of 2017, lower than the market estimates of 6.7 percent.
ANZ Research said this was not an issue because markets knew that this was due to deterioration in trade balance.
The country has been posting strong imports growth to meet rising domestic demand in line with sustained rise of gross domestic product (GDP) and this, in turn, has registered lower exports figures.
PSA data show that as of November 2017 alone, imports grew by 18.5 percent year-on-year while exports expanded by only 1.6 percent.
At the 11th month last year, the country’s trade balance ended with a deficit of USD3.78 billion, higher than the USD2.49 billion deficit same period in 2016.
ANZ said domestic demand went up by 7.3 percent year-on-year from October to December last year, the fastest expansion last year.
“The prospects for growth in the Philippines remain solid with the tax reform-induced infrastructure spending plan of the government set to reinforce the already strong domestic demand conditions,” it said.
The research study, on the other hand, raised as concern the increasing imbalances of robust credit growth and widening trade deficit that come along with strong domestic demand.
It cited that growth in government’s infrastructure spending “is coming at a time when the economy is already growing at or above trend.”
“This development could, in turn, worsen the underlying imbalances of accelerating credit and widening trade deficit,” it said.
These developments can negatively impact on the Philippine peso, “until and unless we get a decisive and sufficient monetary policy response,” it said.
Thus, the research arm of the global financial institution ANZ projects 25 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates each in the first quarter and second quarter this year.
“At the same time, we acknowledge that the central bank has yet to signal any shift in its policy,” it add.