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Philippines To Sustain Its Economic Gains in 2015

The country's GDP is projected to expand to 7-7.5% on expectations of accelerated government expenditure on infrastructure and rehabilitation projects, resurgence of manufacturing, and pre-election spending, supported by strong domestic demand and favorable growth prospects. Inflation is expected to soften to 2.7-3.0% this year as global oil prices dive sharply, private consumption continues to rise, and bottlenecks in the supply of goods resulting from Manila's truck ban further ease.

OFW remittances, which hit a record high of $2.11 billion in September, will slightly move downward to 4.5-6.0% as an effect of the declining oil prices to hard-hit oil producing OFW destinations.

Exports growth will be sustained at 9-13% driven by the strengthening of the global manufacturing industry, the US economic recovery, and the weakening peso. Imports of goods and services will be slower at 2-5% growth given the contraction in electronic imports, other raw materials, machinery, and other mechanical appliances.

The US dollar will further strengthen as a result of an improving US economy. The peso, which averaged P44.39 to a dollar in 2014, is estimated to average at P45-47 to a dollar this year.

In the fixed income market, foreign exchange, inflation and money supply will continue to impact interest rates movement. T-bill rates are projected as follows: 91-day at 1.00-1.50%, 1-year at 1.425-2.175%, 5-year at 2.80-3.50%, 10-year at 3.675-4.175% and 20-year at 4.55-5.05%. A lower inflation scenario will trigger a rally in the GS bond market in the first half of 2015.

The equities market is seen to breach the 8,000 level and hit 8,300-8,500 with price earnings (PE) ratio of 19x and corporate earnings growth of 13-16%. The rally will be driven by favorable macroeconomic backdrop, increased spending ahead of the 2016 national elections, more regional mergers and acquisitions, ASEAN integration take-off, lower oil prices, and strong demand for electricity. Sectors seen to lead the index are holding firms, industrial, property, services, and financials.

For capital raising, corporate bond issuers, particularly property companies, will take advantage of the lower inflation and lower interest rates environment through more innovative fund raising structures such as securitization and direct retail issuances in addition to conventional bank financing. Infrastructure financing, primarily in power and water, will be in demand this 2015. A number of acquisition financing and M&A, both onshore and offshore, are also expected. In the equities space, more issuances of preferred shares and small caps/bite-sized IPOs are anticipated. Banks will continue to raise capital as well.