Industry Trend Analysis - Largest-Ever Infrastructure Budget Supports Positive Outlook - OCT 2017

BMI View: The Philippines will continue to be one of the fastest-growing construction markets in Asia, a status that is reinforced by the 2018 budget , which provides the most amount of funding ever for infrastructure investment. Despite our belief that some of the government's revenue and expenditure goals are too ambitious, public investment will still support rapid growth in the construction industry averaging 9.8% annually between 2017 and 2026 .

We remain optimistic in our growth forecasts for the Philippines' construction industry with the latest sign of support coming from the government's 2018 budget, which allocates the largest amount of funding ever for infrastructure development. Approved by the House of Representatives in September, the latest budget proposal gives PHP643bn (USD12.6bn) to the Department of Public Works and Highways (DPWH) - a 38% increase from the previous year and the second-highest allocation for any department. These funds will go toward President Rodrigo Duterte's 'Build, Build, Build' infrastructure initiative, which includes projects such as subway and commuter rail lines in Manila, and airport expansions across the country.

Although our Country Risk team highlights that the government, similar to previous years, is likely to miss both revenue and expenditure targets, we note that realized investments will still provide a sizable boost to the construction industry. We previously upgraded our outlook for the Philippines' construction industry on the back of increased government and foreign investment in infrastructure; this increase in spending is in line with our expectations and we continue to forecast real growth in the construction industry to reach 11.8% in real terms in 2018 ( see ' Government's Focus On Infrastructure Upgrade Positive For Growth ' , September 15). The budget also reinforces Duterte's rhetoric of supporting infrastructure development, which will help encourage greater private and foreign investment in the sector.

Elevated Industry Growth
Philippines - Construction and Infrastructure Industry Forecasts
f = BMI forecast. Source: Central Bank, National Statistical Coordination Board, BMI

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