The Philippines will be one of the two countries in the Association of Southeast Asian Nations (Asean) that will top consumption and investment growth in the region this year, global bank HSBC said.
“The Philippines and Vietnam will top the consumption and investment ranks,” the London-based bank said in a report released on Wednesday.
This year, consumption in the Philippines is projected to grow 7.1 percent, which HSBC regards as impressive despite the slowdown from 2016, given that the 7.3 percent increase recorded last year was largely fueled by election-related spending.
Consumer spending in Indonesia and Vietnam is expected to pick up this year, the former from 5 percent to 5.2 percent, and the latter from 5.9 percent to 6.4 percent it said.
Low debt levels
“We think the Philippines and Indonesia are the best all-rounders, given low household debt and contained
fiscal deficits,” the bank said.
“Very little of the consumption growth in these countries will be driven by household debt, which is set to remain below 20 percent of GDP [gross domestic product]. Instead… consumption will continue to be supported by robust labor market and wage conditions, which have been tightening for some time,” HSBC added.
The report noted that employment in the manufacturing sector, particularly in the Philippines and Vietnam, has held up well despite weak global demand, though these job gains have been over-reliant on electronics.
Support from remittances
In the Philippines, further support to consumption will continue to come from remittances by overseas Filipino workers (OFW), according to the bank’s projections.
“Indeed, should US economic growth accelerate to 2.3 percent in 2017 and 2.7 percent in 2018 as we expect (from 1.6 percent in 2016), remittances could receive a larger boost, not only from potentially stronger OFW wages, but also a more favorable exchange rate as the US dollar appreciates,” it added.
Investment in infra
The banking giant also stressed that the Philippines and Vietnam will show the fastest pace of growth in consumption, as well as in investment.
“Capital outlays in Vietnam should rise to 7.5 percent this year from 7 percent in 2016, while in the Philippines, investment growth should remain in double digits,” it said.
An over-arching driver of the strong investment story for both economies is the much-needed development of infrastructure ‒ ports, airports, roads, railroads, airports, power and water plants, and so forth, it added.
HSBC said the Philippine government is allowing its budget deficit to grow to 3 percent of GDP in 2017 to absorb infrastructure spending, which it sees rising to an equivalent of at least 5 percent of GDP.
The Duterte administration plans to continue increasing infrastructure spending to 7 percent of GDP by the end of his term – significantly boosting the overall contribution of investment to the structure of growth in the Philippines.
“Fortunately, fiscal consolidation in recent years will allow the government to pursue fiscal expansion, and low public debt levels suggest this spending is sustainable for now. The government is also hoping to accelerate public-private partnership (PPP) projects to co-opt more financing from the private sector,” it added.
HSBC has said that this year, the Philippine economy is set to remain resilient, with GDP growth at 6.5 percent. That indicates a slowdown from a 6.8 percent expansion in 2016 and shows congruence with the lower end of the government’s official target growth range of 6.5 percent to 7.5 percent.