Consumption will continue to drive the Philippine economy in the near future, HSBC said, insulating the country against external headwinds.
In a report released on Friday, the London-based bank said that consumption remained the primary anchor of growth, constituting over 70 percent of gross domestic product.
Private consumption was said to have remained strong over the years due to robust remittances and a continued decline in unemployment. Meanwhile, continued expansion in public spending has resulted not just in an acceleration of infrastructure outlays but also a pick-up in government consumption, it added.
“Taken together, Philippine domestic demand often largely offsets the external sector’s (net exports) negative contribution to growth. We believe this trend is likely to continue in the foreseeable future, resulting in the Philippines remaining relatively insulated to external growth risks,” the lender said.
Moving forward, HSBC said that rising urbanization should continue to drive consumption growth, with recent labor statistics suggesting the country’s workforce is gradually shifting from agriculture to construction in an effort to take part in the government’s infrastructure push.
It noted that employment in agriculture had declined from over 12 million in 2012 to just over 10 million this year, down about 16 percent, while employment in construction had increased about 84 percent during the same time period from 2.1 million to 3.8 million.
“This also means a shift from rural to urban areas where most of the construction projects are centered. The higher incomes and increased availability of goods and services in urban areas should also bode well for overall consumption,” it added.
While some might note that growth in private consumption declined considerably in the third quarter of 2017 — growing just 4.5 percent year-on-year compared to its long-term trend of around 5 percent, HSBC said this was primarily due to idiosyncratic factors such as the sharp fall in remittances in September and a high consumption base from the previous year.
“In fact, lower-than-expected remittances in September could signal some payback for the year-end with higher-than-usual transfers, considering remittances growth has overall been quite robust in 2017,” it said.
In September, personal remittances slumped to its lowest level in five months at $2.44 billion.
“Thus we expect private consumption growth to lift back up above its long-term trend in fourth quarter and to stay there for the rest of 2018,” it added.
Not all is smooth sailing, however, as HSBC said underlying data also suggested that shifting from agriculture to construction, which is largely male-dominated, could lead to temporary unemployment and/or perhaps employment in the informal sector.
The rise in male unemployment, it added, may have also contributed to lower consumption growth in the third quarter and posed a risk to growth if the government would be unable to achieve its infrastructure ambitions.
For now, however, HSBC said “Our base case remains that the government will push through its infrastructure agenda, which also leaves us constructive on the Philippines’ growth and consumption in the years to come”.