The current account’s positive balance should hold with OFW remittances enough to cover balance of trade deficits. The economy should expand by 6.5% to 7% in Q1-2017 with exports providing the new boost to robust domestic demand. Strong consumer spending and sustained manufacturing sector activity will continue to propel domestic demand, bolstered by OFW remittances. Inflation should stabilize at 3.5% up to Q3, thanks to easing food prices and crude oil prices, reeling from abundant supply and more oil from shale.
Fixed Income Market
Success or failure of President Trump to obtain funds to splurge on infrastructure, the border wall, and tax cuts will likely dictate the direction of U.S. Treasury yields in Q2. This and local funds exiting from the Bangko Sentral ng Pilipinas (BSP), and movements in local inflation rate would provide a slight downward bias for local bond yields. As we expect inflation to stabilize at 3.5%, investors may feel comfortable to take more risks once again.
Supported by reflow of investments into emerging markets (EMs), Q2 will test the market’s vitality as key indicators emerge. These include (1) Q1 corporate earnings reports, (2) Q1 PH GDP and (3) semi-annual rebalancing of MSCI. In addition, the government’s ability to roll out its infrastructure projects and big-ticket PPPs will become more evident. Consumer-oriented firms, banks, power, construction and well-diversified holding firms would be good for investors on market sell-offs.