S&P, HSBC raise PH growth forecasts

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6.1%-6.3% projections for 2016 stand within 6% -7% govt target range

Debt watcher Standard & Poor’s Global Ratings and banking giant HSBC have raised their growth forecasts for the Philippines for this year and next, bringing them into the range of targets set by President Rodrigo Duterte’s economic planners.

S&P and HSBC identified the country’s growing middle class, “booming” business process outsourcing sector, and the Duterte administration’s fiscal policy as drivers of growth.

The ratings agency forecasts an expansion of 6.1 percent in Philippine gross domestic product (GDP) in 2016, revising upward its previous growth projection of 6 percent. For 2017, S&P retained its GDP growth outlook at 6.3 percent.


HSBC, on the other hand, now sees the Philippine economy growing 6.3 percent in both 2016 and 2017, higher than its previous projections of 5.9 percent for this year and 5.8 percent for next.

The new forecasts stand within the government’s revised 6 percent to 7 percent target for 2016, but fall still slightly below the 6.5 percent to 7.5 percent range set for 2017.

Full-year GDP growth for 2015 stood at 5.8 percent.

“The Philippines continues to be the outperformer with its growing middle class and business process outsourcing boom,” S&P said.

The credit ratings agency said the Philippines and other Asia Pacific economies’ national accounts had “a pretty good” second quarter.

“Macroeconomic data have improved modestly in the past quarter and we have nudged up our forecasts or lowered our risk for some key economies in the Asia-Pacific region,” it said.

“Risks have narrowed since our last report, at least over our two-year horizon. The Brexit vote had limited impact on our projections, but it might move the needle if turbulence resurfaces,” it added.

HSBC’s fiscal plans
The fiscal plans of the new government have important implications for growth, HSBC said, adding, the administration’s intent on sustaining the infrastructure drive is reassuring.

The bank said a higher budget deficit ceiling of 3 percent in 2017, which indicates increased government spending, would further support the Philippines’ already-robust growth trend.

“As we have stressed repeatedly, an increase in the longer-term growth outlook was always predicated on sustained infrastructure spending,” it said, concluding, “short-term impact on investment and employment leads us to upgrade our 2016 and 2017 GDP forecasts.”

HSBC also noted, “The high pedigree of the [Cabinet] appointees is a comforting sign for the markets and suggests that the Philippines will likely maintain its position as one of Asia’s brightest growth performers.”

The lender said the economic outlook for the Philippines is robust for the time being but there are longer-term issues that may come back to haunt the country if not resolved.

For example, it said the Philippines has a structural trade deficit, and manufacturing growth has yet to pick up substantially outside of electronics, despite policy efforts to encourage other exports.

Continued infrastructure growth is extremely important to help diversify the economy over the long run and increase productivity, particularly in Metro Manila, where the poor state of infrastructure and traffic issues has a clear impact on productivity and output, it stressed.

While the bank recognized the Philippines’ “great strides in improving fiscal transparency and increasing the quality of spending,” it cautioned that “[A] deficit of 3 percent should support growth, but we see a risk that the target is achieved by other types of spending that are less efficient than investment in infrastructure.”

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