C16177 EubenLavanya

Our Southeast Asia Economists, Euben Paracuelles and Lavanya Venkateswaran, tell us why they think it is unlikely.

We maintain our positive outlook on the Philippines, reiterate our out-of-consensus 2016 and 2017 GDP growth forecasts of 6.7% and 6.3%, respectively, and raise our 2018 forecast to 6.5%. Unlike the rest of the region, potential growth has risen and could rise further, given favourable demographics and higher investment.

We expect the Duterte government to make more progress on infrastructure spending than its predecessor and boost reforms, particularly by cutting red tape and implementing comprehensive fiscal changes despite the current political noise.  We think fundamentals remain sound: the risk of a “twin deficit” problem is limited, fiscal expansion plans are sustainable, FDIs are rising and there is ample monetary space to counter inflation risks.

From an FX strategy perspective, we maintain our medium-term constructive view on PHP, although we acknowledge some near-term risks. From an equity strategy perspective, we upgrade the Philippines to overweight, as markets move past the initial shock of Duterte while favorable growth dynamics and reform prospects are strengthening.

View the full report here for comprehensive explanations of Euben and Lavanya’s views above. 

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