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Upbeat growth projections mount

Posted on January 13, 2017

HSBC has raised its growth forecast for the Philippines to cement its position as among Asia’s fastest-growing economies -- a day after the World Bank and S&P Global Ratings gave a similar picture -- growing more bullish on the back of the government’s infrastructure push and ample buffers that will help shield the country from global hiccups.

The global bank said the Philippines likely expanded by 6.8% in 2016 from 5.9% in 2015 -- beating even China (6.7%), India (6.3%) and Vietnam (6.2%) and matched only by Bangladesh to be a leader among 16 tracked Asia-Pacific economies that also include the likes of Australia, Hong Kong, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea, Taiwan and Thailand -- higher than its previous 6.5% estimate and well within the government’s 6-7% growth goal.

HSBC’s 2016 projection is shared by the Asian Development Bank, Organization for Economic Cooperation and Development and the World Bank.

The country’s gross domestic product (GDP) expanded by a three-year-high 7.1% in 2016’s third quarter, bringing the nine-month average to 7.0% on the back of an investment surge and upbeat household spending. Last year saw Philippine growth outpacing even that of China in the second and third quarters, being outperformed only by India in both periods.

The bank said growth may have slowed to 6.2% in the fourth quarter, which likely pulled down the full-year rate.

Socioeconomic Planning Secretary Ernesto M. Pernia told reporters last Tuesday that he expected fourth-quarter GDP to have expanded by 6.8-7.1%, and last month gave a 6.5-7% full-year 2016 growth estimate.

The government is scheduled to report fourth-quarter and full-year 2016 growth data on Jan. 26.

For 2017, HSBC expects Philippine GDP growth to clock in at 6.5%, higher than its previous 6.3% estimate.

The high growth trend is seen sustained until 2018, when growth is seen to average at 6.5% and still make the country “shine” against neighbors.

“The Philippines, too, has plenty of wind in its sails at the moment, delivering stunning growth even as the currency has depreciated rapidly over the second half of 2016,” HSBC economist Joseph Incalcaterra said in the Asian Economics Quarterly report the bank released yesterday.

The peso hit eight-year lows over the last three months of 2016, twice flirting with the P50 level versus the dollar as negative market sentiment weighed on emerging market currencies as the United States Federal Reserve pursued another interest rate hike in December.

“Over the coming year, extra fiscal spending, especially on infrastructure, should help sustain demand, though at the risk of a narrowing current account surplus,” Mr. Incalcaterra said, referring to plans by the Duterte administration to spend as much as P9 trillion over the next six years on public infrastructure, which in turn is seen to help spur GDP growth to up to eight percent while also drawing in more direct investments.

“Private consumption and investment remain the main drivers of growth,” Mr. Incalcaterra said, noting that the Philippines is poised to remain as one of the “strongest” performers in Asia, supported by steady growth in remittances and rising employment in local tourism, construction, and business process outsourcing sectors.

“Investment will likely remain robust as the government targets a three percent deficit in the 2017 budget, with infrastructure investment upwards of five percent of GDP. The government plans to continue increasing infrastructure spending to seven percent by the end of its term -- significantly boosting the overall contribution of investment to the structure of growth in the Philippines.”

Looking ahead, HSBC sees the government’s infrastructure push as a boost to overall growth.

“Fortunately, fiscal consolidation in recent years allows the government to pursue fiscal expansion, and low debt levels suggest it is sustainable for now,” the report read.

“There are various headwinds on the horizon for the regional economy next year and, while the Philippines is not completely spared, the economy remains relatively insulated.”

Mr. Incalcaterra said fears of fewer US investments to the Philippines could be offset by capital from Chinese businesses, which committed as much as $24 billion during President Rodrigo R. Duterte’s visit to Beijing in October.

Locally, proposed reforms on taxation and constitutional limits on foreign ownership are expected to attract even more investments, but much will “depend on how the reforms are ultimately implemented.”

However, external trade may remain in the doldrums this year.

“[T]he outlook for manufacturing exports does not look too bright outside electronics, which might lead to a continuation of trade deficits in the Philippines.”

Consequently, the country’s current account surplus is expected to narrow.

“We forecast the current account continuing to moderate through 2018, but a pick-up in capital inflows following potential FDI (foreign direct investments) reform could partly offset the weaker current account.”

HSBC expects the current account surplus to have narrowed to 1.3% of GDP last year, before slipping to 0.9% this 2017 and to 0.5% in 2018, taking into account the persisting trade slump.

Monetary policy is also seen “fairly accommodative” thus far, although the bank said a 100 basis-point cut in the reserve requirement ratio imposed on big banks may be introduced this semester in response to tighter liquidity, which comes a year after the central bank introduced term deposit auctions. -- Melissa Luz T. Lopez