Banking giant HSBC trimmed its growth projection for the Philippine economy this year to 5.6 percent from 6 percent earlier amid weak global demand and slow government spending.
The Philippine economy grew 6.1 percent in 2014 and the government expects gross domestic product (GDP) this year to expand by 7 percent to 8 percent.
In its “Asian Economic Quarterly” report, HSBC said the Philippines is not immune to weak global demand.
HSBC noted that weak global demand dragged net exports in the first quarter of the year by almost 2 percentage points. The contraction in net exports offset strong growth in private consumption, resulting in a slower-than-expected GDP growth of 5.2 percent in the first quarter.
Slow government spending also did not help, it noted.
“Despite efforts to speed up spending, government consumption remains a challenge; it slowed in the first quarter of 2015 despite a weak base effect,” the bank said.
However, HSBC believes that the government will try to speed up spending to support growth. It forecasts fiscal spending rising by 10 percent this year due to programmed higher spending in the second half.
Nevertheless, the banking giant said the Philippines will continue to be one of the bright spots in the Association of Southeast Asian Nations (Asean) thanks to its booming consumption.
“The country’s increasing consumption will be further boosted by the fall of oil prices,” which should lead to lower transport and household costs, dampening inflationary pressures, it said.
“Falling oil prices are thus keeping price pressures contained and inflation within the central bank’s 2 percent to 4 percent target in 2015,” it added.
Slow investment growth
HSBC, however, warned that slow investment growth and capital outflow remain a challenge for the economy.
“The low level of investment remains a concern. The private-public partnership initiative has been sluggish at best. The administration has promised to raise infrastructure investment but, thus far, key shortages such as electricity and air transport remain unaddressed,” it stated.
HSBC said slow investment expansion will weigh down the country’s competitiveness and potential output.
Coupled with this, the rapid increase of the population means that the Philippines needs to generate new jobs to productively absorb its potential labor force, it said.
“We expect public investment to slow and private consumption and investment to pick up the slack. Should government spending slow more than expected and household expenditure weaken (not our assumption), then growth may slow sharply,” it warned.
The banking giant added that while capital outflow was another concern, the Bangko Sentral ng Pilipinas (BSP) has ample foreign reserves to support the currency.
“That said, we believe weakness from the external factors will motivate the BSP to tolerate some PHP weakness, while keeping rates on hold,” it concluded.
Earlier, Standard Chartered Bank also cut its GDP forecast for the Philippines this year to 5.7 percent from a previous projection of 6 percent due to the effects of a slowdown in China’s economic performance.
Moody’s Investors Service trimmed its 2015 growth forecast for the Philippines to 6 percent from 6.5 percent, citing bottlenecks in the government’s budget execution.
Singapore-based DBS Bank and SB Equities Inc., the equities brokerage arm of Security Bank Corp., also made downward adjustments to their Philippine GDP projections for 2015. DBS cut its growth forecast to 6 percent from a previous projection of 6.3 percent, while SB Equities reduced its GDP expectations to 6.4 percent from 6.7 percent.
The International Monetary Fund (IMF) has said it was set to review its 6.7-percent Philippine growth outlook for the full year to consider the impact of the weakerthan-expected GDP performance of 5.2 percent in the first quarter.