BMI Research Forecasts Sustained 6% Level Growth for Philippines

The research subsidiary of Fitch Group projects the sustained robust expansion of the Philippine economy on back of the government’s infrastructure program, favorable demographics, and increased trade with China.

BMI Research eyes a 6.3 percent growth in 2018 and 6.2 percent in 2019 – levels that the research entity considers “respectable.”

These are lower than the 6.7 percent output, as measured by gross domestic product (GPD), that the economy posted in 2017.

“We emphasize that the 6+% GDP expansion is still strong by regional and historical standards and this will be supported by positive demographic trends, a strong public infrastructure drive, and deepening economic cooperation with China,” the study said.

However, BMI Research cited as risk to growth the deteriorating business environment, citing that the seven percent growth in the third quarter of 2017 will be “unlikely to continue as leading financial market indicators were showing signs of fatigue while the business environment has been deteriorating.”

This deterioration, it said, is expected to hamper further improvement on private sector investment in the next quarters.

It noted that growth of fixed capital formation declined to 10.3 percent in 2017 from year-ago’s 25.2 percent, with construction rising only by 5.7 percent from 2016’s 15.1 percent, and durable equipment by 12.2 percent from year-ago’s 34.5 percent.

Amidst these risks, BMI Research remains optimistic on the domestic economy’s growth, which is expected to get additional lift from the tax reform program, the first package of which is for implementation starting January this year.

Package 1 of the Tax Reform for Acceleration and Inclusion (TRAIN) law cuts personal income tax in the country, making workers’ first Php250,000 annual income tax free. Impact of this on government revenues will be countered by excise tax hikes on fuel and sugar-sweetened beverages, among others.

The first tax reform package is estimated to generate around Php82.3 billion additional revenues for this year alone, and this, the study said, is a plus on the government’s program to increase infrastructure investment.

“This will likely go some way in improving the country’s poor infrastructure, which has long prevented the Philippines from reaching its growth potential,” it added.