Global bank HSBC revised upward its 2016 economic growth forecast for the Philippines to 6.5 percent from 6.3 percent originally, expecting the country to continue outpacing growth in the region on the back of a strong first-half expansion and the government’s commitment to implement much-needed reforms.
HSBC’s forecast matches the government’s projection of at least 6.5 percent GDP growth for this year, seeing the impact of weather disruptions on the agriculture sector turning out to be less severe than initially predicted.
In a report released Thursday, HSBC said although growth will moderate in year-on-year terms through the second half as the impact of the elections and budget front-loading wears off, overall domestic demand will nonetheless remain resilient as government spending continues to fuel growth.
“Following the strong outturn of growth in the first half of 2016, we recently raised our full-year forecast from 6.3 percent to 6.5 percent, and forecast growth of 6.3 percent in 2017 and 6.4 percent in 2018,” it said.
The economy grew 7 percent in the second quarter of this year, bringing the first-half expansion to 6.9 percent. The bank’s latest forecast is well within the government’s 6 percent to 7 percent official target for this year.
“We are confident that growth in the Philippines will continue to outpace growth in the region in coming years as the country plays infrastructure catch-up and builds a larger fixed capital base,” the HSBC report added.
Infra, agri investment
The report highlighted the government’s P3.35 trillion 2017 budget, which puts high priority on infrastructure investments in social services and modernization of agriculture.
“Of all these factors, public infrastructure will have the largest impact on growth, and Budget Secretary [Benjamin] Diokno has pledged to increase the infrastructure allotment to 7 percent of GDP [gross domestic product]by 2022, the end of the government’s term in office,” it said.
Moreover, the report mentioned the government’s promise that public-private partnership (PPP) projects will continue to be among its top priorities and the program may be accelerated.
The report also cited the government’s push for its reform agenda, along with promoting infrastructure growth.
“The government has selected tax reform to be the top priority, and the final reform will likely include lower income and corporate taxes, while closing VAT ‘loopholes’ and increasing ‘sin taxes.’ Upcoming reforms will likely focus on decreasing limits on foreign ownership to increase FDI [foreign direct investment],” the HSBC report added.
HSBC, nevertheless, pointed to some challenges ahead.
“As mentioned earlier, the economic outlook for the Philippines is robust; underpinned by resilient domestic demand. However, there are long-term issues that may come back to haunt the country if not resolved,” it said.
The bank cited, for instance, the Philippines’ structural trade deficit, and the not-so-bright outlook for manufacturing exports outside of electronics, despite policy efforts to encourage other exports.
“After all, exports have been contracting rather sharply as of late—while imports of capital equipment surged—and the trend growth of remittances has also moderated to approximately 3.5 percent,” it said.
But it said while remittances may not provide the same boost to consumption as before, improvement in domestic employment opportunities, mostly from construction, business process outsourcing and tourism, is more than enough to offset the effect for now.
Lastly, the bank said the Philippines remains highly vulnerable to weather trends.
“Fortunately, risk stemming from the onset of La Niña after El Niño are relatively contained, thanks to government efforts to ramp up rice imports in Q3 2016 (250,000 metric tons) and 2017 (750,000 metric tons),” it said.
Philippine Socioeconomic Planning Secretary Ernesto Pernia has said 6.5 percent economic growth should be achievable for full year 2016 on the back of better-than-expected agriculture sector.
“Probably because rains have been good, there has been a lot of rain but not destructive, so it’s going to be healthy for agriculture,” he told reporters in a press chat late last week when asked for the drivers of growth.
“La Nina is supposed to be milder than anticipated, Pagasa [Philippine Atmospheric, Geophysical and Astronomical Services Administration] already said that … [so]let us hope that the typhoons keep skirting the Philippines,” he added.
HSBC is the latest institution that has revised its growth forecast for the Philippines this year.
Earlier, the International Monetary Fund (IMF) and the Asian Development Bank (ADB) both revised upward their growth projections for the country to 6.4 percent, Fitch-owned BMI Research raised it to 6.9 percent from 6 percent; Japanese investment bank Nomura and London-based consultancy firm, Capital Economics have also raised their forecasts to 6.7 percent—Nomura from 6.3 percent and Capital Economics from 6.5 percent.
Singapore’s DBS Bank revised its Philippine forecast from 6.3 percent to 6.6 percent; Swiss banking giant Credit Suisse from 6.2 percent to 6.5 percent; and global financial services firm J.P. Morgan to 6.4 percent.
Meanwhile, the World Bank, Standard & Poor’s Global Ratings, Metrobank Research and Bank of the Philippine Islands (BPI) said they were keeping their previous economic projections for the year.
World Bank kept its 6.4 percent projection for the country, S&P its 6.1 percent outlook, Metrobank its forecast of 6.3 percent growth and BPI, 6.2 percent.