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Philippines Country Risk Reports Q2 2015

Philippines Country Risk Reports Q2 2015

Core Views

While the Philippine economy performed poorly in Q314, owing to lacklustre fiscal spending and the surge in import growth, we nevertheless remain positive on the economy. Strong domestic demand should continue to provide support. That said, potential growth headwinds ahead will pose downside risk to our 2015 real GDP growth forecast of 6.0%.

Falling oil prices and the deceleration in money supply growth should keep inflation manageable over the coming months. That said, we continue to see one 25 basis points rate hike in H215, owing to potential price pressures emanating from still strong credit growth.

Continued budget discipline by the Philippine government will keep the country's fiscal position on a sustainable trajectory over the coming years. We forecast the country's fiscal deficit to narrow from an estimated 0.8% of GDP in 2014 to 0.6% in 2015. However, the continued lack of fiscal spending momentum could weigh on real GDP growth in 2015.

While a still positive economic growth outlook will keep the Philippine peso resilient, we believe ongoing weakness in regional peer currencies will limit strength in the unit. We maintain our neutral outlook for the peso, and see the unit averaging PHP44.60/USD in 2015.

Major Forecast Changes

We have revised our 2015 benchmark interest rate forecast to 4.25%, from our previous estimate of 4.00%.

We have revised down our 2015 average inflation forecast to 2.9%, from 3.8% previously.

We have revised our forecast for the Philippine peso to average PHP44.60/USD in 2015, from our earlier estimate of PHP43.71/ USD.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Typhoon Ruby Unlikely To Derail Growth Momentum
While Typhoon Ruby will weigh on economic activity in the near-term, we believe the Philippine economy will likely remain resilient.
As such, we maintain our 2014 and 2015 real GDP growth forecasts at 5.8% and 6.0%, respectively. We also expect a more effective
response by the government to the latest disaster relative to that for Yolanda in 2013, which will bode well for domestic politics.
Table: Political Overview
Long-Term Political Outlook
Stable Politics For Now, But Political Challenges Remain
The Philippines faces a number of political challenges over the coming years that, if handled successfully, could improve governance.
However, given low income levels and high levels of inequality, we expect the political scene to remain vulnerable to intermittent
instances of turmoil.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Economy To Stay Resilient Despite Weak Q314 GDP Print
While the Philippine economy performed poorly in Q314, owing to lacklustre fiscal spending and the surge in import growth, we
nevertheless remain positive on the economy. Strong domestic demand should continue to provide support. That said, potential growth
headwinds ahead will pose downside risk to our 2015 real GDP growth forecast of 6.0%.
Table: Ec onomic Acti vity
Fiscal Policy
Fiscal Position To Continue On A Sustainable Trajectory
Continued budget discipline by the Philippine government will keep the country's fiscal position on a sustainable trajectory over the
coming years. We forecast the country's fiscal deficit to narrow from an estimated 0.8% of GDP in 2014 to 0.6% in 2015. However, the
continued lack of fiscal spending momentum could weigh on real GDP growth in 2015.
Table: Fisca l Policy
Monetary Policy
Easing Inflation To Hold Off Rate Hikes For Now
Falling oil prices and the deceleration in money supply growth should keep inflation manageable over the coming months. That
said, we continue to see one 25 basis points rate hike in H215, owing to potential price pressures emanating from still strong credit
growth.
Table: Monetary Policy
Exchange Rate Policy
Peso Resilience To Persist
While a still positive economic growth outlook will keep the Philippine peso resilient, we believe ongoing weakness in regional peer
currencies will limit strength in the unit. We maintain our neutral outlook for the peso, and see the unit averaging PHP44.60/USD in
2015.
Table: CURREN CY FORECAST
Table: Curent Acount
philippines Q2 2015
Chapter 3: 10-Year Forecast
The Philippine Economy To 2024
Uncovering A Forgotten Gem?
The Philippines holds significant economic growth potential, and has only begun to come into the investment spotlight. Although the
country has in the past been hampered by political instability and poor investor perception, President Benigno Aquino III has been able
to make progress on the political and economic front. Moreover, consumerism is expected to pick up in a big way towards the end of the
decade as income levels rise.
Table: Long-Term Macroeconomic Forecasts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
Table: Asia – Operational Risk
Availability Of Labour
Table: Asia – Avai labi lity Of Lab our Ris k
Table: Lab our Forc e Employment By Sector ('000)
Crime Risk
Table: Asia – Crime Risks
Table: Crime Statistics
Chapter 5: Key Sectors
Autos
Table: Autos Total Market – Historical Data & Forecasts
Food & Drink
Table: Food Consumption Indicators – Historical Data & Forecasts
Table: Hot Drink Value/Volume Sales, Production & Trade – Historical Data & Forecasts
Table: Mas Grocery Retai l Sales By Format – Hist orica l Data & Forecasts
Other Key Sectors
Table: Oi l & Gas Sector Key Indicators
Table: Phar ma Sector Key Indicators
Table: Infrastructur e Sector Key Indicators
Table: Telecoms Sector Key Indicators
Table: Defence & Security Sector Key Indicators
Table: Freight Key Indicators
Chapter 6: BMI Global Assumptions
Global Outlook
New Era For Oil
Table: Global Asumptions
Table: Developed States, Real GDP GrowtH, %
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
Table: Emerging Markets, Real GDP Growth, %

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