• External headwind to drag down economy

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    The continued external uncertainties could drag down the Philippine economy in the second half of the year, according to HSBC.

    “While we expect the economy to cool from a 7.8-percent year-on-year expansion in the first quarter to expand 6.4 percent in 2013, the pace of growth is still much higher than the trend growth rate, thanks to resilient private consumption and a gradual rise in investment,” HSBC economist Trinh Nguyen said in a research note.

    The HSBC projection is within the government’s 6-percent to 7-percent gross domestic product (GDP) growth this year. However, it is lower than the recorded 6.8-percent economic expansion in 2012.

    “Coupled with uncertainty in the external environment, growth in the Philippines is expected to decelerate in 2H [second half]. External headwinds are strong,” Nguyen stated.

    She said that one of the impacts of the global crisis is the slower growth of remittances, which provides less support to private spending. Personal remittances from overseas Filipino workers (OFWs) slightly rose to $2.1 billion in May 2013 from the $2 billion recorded the previous month.

    Furthermore, Nguyen noted that exports also continued to be a drag on growth and contracted by 0.8 percent in May, reaching $4.891 billion from the $4.932 billion recorded a year ago. She said that the slowing of the credit cycle also added another blow.

    “Even with external demand likely to pick up toward year-end, thanks to a recovery from the United States [US], Japan and China [contingent on the government stepping in to help], the BSP [Bangko Sentral ng Pilipinas] will not take any chances and keep rates low,” Nguyen stated.

    Last week, BSP’s Monetary Board decided to maintain the current key policy rates based on its assessment that the inflation environment continues to be benign. Interest rates on the special deposit account facility were also maintained at 2 percent.

    Fiscal spending
    “Fiscal spending will also boost growth, but a significant pick-up of public investment is not on the cards,” Nguyen added.

    She noted that after gaining control of both houses in the May midterm elections, President Benigno Aquino 3rd now has a stronger political mandate.

    However, Nguyen said that while the government wants to raise public infrastructure spending to 5 percent of GDP by 2016 from 2.5 percent in 2013, the President, in his fourth State of the Nation Address, did not highlight any specific plans to achieve this.

    “Therefore, any substantial increase to the country’s investment will likely come from the private sector; and the BSP will facilitate by holding main policy rates low and forcing SDA funds to flow elsewhere,” she said.

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