The Philippine economy will remain solid in the next two years despite the uncertain impact of a change in government on the investment environment, banking giant HSBC said.
Favorable demographics, low household debt and steady remittance inflows, coupled with election spending, will support consumption in offsetting anticipated sluggish investment growth.
In a report released on Thursday, HSBC economist Trinh Nguyen said the bank is forecasting the country’s gross domestic product (GDP) to grow solidly at 6.1 percent in 2015 and in 2016, a slightly higher projection than the bank’s 5.9 percent GDP forecast for 2014.
“Over the last three years or so, the Philippines has been Asia’s bright spot, with its economy expanding at an average annual rate of 5.9 percent. At the same time the Aquino Administration has narrowed the budget deficit, won upgrades by credit rating agencies and lowered funding costs significantly. Even the peace process in the troubled southern island of Mindanao has accelerated,” Nguyen said.
Uncertainty ahead of elections
“While the next presidential race is not until May 2016, we can expect the anticipation of the elections to already be having an impact on the economy and investment behavior,” she stated.
The HSBC economist stressed that uncertainty regarding the transition will probably mean investment will be sluggish in 2015 but may recover in 2016.
Government investment still lags
Nguyen said that the sluggish performance of the projects under the public-private partnership suggests that government investment may not increase sharply next year.
She mentioned that the government has awarded eight projects out of a possible 52, totaling an estimated P127.5 billion or $2.8 billion, but that so far only one project is completed.
“Thus, even if the rest of the awarded projects proceed in the next several years, we do not expect an investment boom in the Philippines as PPP has been sluggish at best,” Nguyen said.
“Any hope of an infrastructure boom will have to come from the government. The appetite for raising fiscal expenditure is low; therefore, we do not expect government investment to increase sharply next year,” she added.
Moreover, the economist noted that the ongoing challenges surrounding the Disbursement Acceleration Program (DAP) also lead HSBC to not anticipate fiscal spending to be a major growth driver next year.
Private consumption a bright spot
On the positive side, Nguyen said private consumption has a clear trend—onward and upward.
“Rapid population growth ensures that demand for private consumption expands while strong remittance inflows provide sustained income growth. Moreover, about a quarter of the Philippines’ population lives below the poverty line, with the result that the majority of the consumption basket is essential items such as food. This ensures inelastic demand even when the economy contracts,” she said.