HSBC upgrades Phl growth forecast to 5.9%

MANILA, Philippines - British banking giant HSBC has upgraded its economic growth forecast for the Philippines this year to 5.9 percent, from its earlier estimate of 4.9 percent, due to the continuing improvement in external outlook, supportive monetary policy and increased fiscal spending of the past months.

In its latest global research, HSBC said the adjusted forecast also took into consideration a number of global developments that may affect domestic growth.

“For this year, we revise our GDP (gross domestic product) forecast upward by one percentage point to reflect stronger growth in Japan, improved economic indicators from the US as well as unusually accommodative monetary policy both abroad and at home,” it said.

HSBC likewise took note of the better-than-expected GDP growth.

“Growth in 2012 exceeded expectations at 6.6 percent and we upgrade our forecast to 5.9 percent from 4.9 percent in 2013,” it pointed out.

“One of the greatest comeback stories in the past year has been the Philippines. The island-nation has transformed from the “sick man of Asia” to a symbol of what gradual and steady reform can achieve. The economy surpassed expectations by expanding 6.6 percent from 3.9 percent, exceeding its long-term output potential of five percent, a remarkable feat, especially given the backdrop of the global slump in 2012,” it added.

Higher growth expectation, it said, was also anchored on optimism the Philippines may snatch the coveted investment-grade status in the next few months.

“The sovereign will likely be rewarded with an investment grade in second half for its prudent management of the economy,” it said.

The latest HSBC research also said remittances shielded the Philippines from sluggish external demand.

“Overseas Filipino worker (OFW) inflows rose above the BSP’s estimate of five percent to 6.3 percent in 2012, slightly down from 7.2 percent in 2011. While remittances have been waning in importance as a share of GDP to 8.5 percent in 2012 from nine percent in 2011, they continue to be vital to private spending in the Philippines. More job contracts in the Middle East and Asia as well as strong demand for Filipino workers will keep remittances flowing in steadily in 2013 and we expect it to expand by 6.3 percent in 2013,” it said.

HSBC, however, noted some challenges the country has to face in the near future.

“Challenges remain, including weak infrastructure, but attaining cheaper and more stable sources of funding would allow the government to roll out broader reform agenda,” the report said.

“Acquiring cheaper and more stable sources of funding will lay a foundation for the government to focus on broader reform agendas. And a lot of work is still required.”

“While the country is endowed with natural resources, a skilled labor force, favorable demographics, and a dynamic domestic market to counter the global slump, a still lackluster infrastructure and business environment hinder investment and productivity,” it said.

It also noted that both manufacturing and electronics are losing their shine.

“This is largely due to the Philippines’ uncompetitive infrastructure and relatively high labor costs. For example, the country has one of the highest electricity costs in Asia,” it pointed out.

It said “an inefficient allocation of the labor market, caused by rigid minimum wage laws, result in labor uncompetitiveness. As such, despite having surplus labor (around 20 percent of the labor force is underemployed and about seven percent unemployed), the Philippines is not considered an attractive destination for manufacturing.”

HSBC likewise pointed out the need to put more focus on the development of human resources.

By the end of this year, the UN projects the Philippine population to reach 100 million.

Of this, it said about 70 percent is younger than 35 years old, making it one of the youngest nations in Asia. The population is expected to expand rapidly into 2050, allowing the working age population to reach almost 70 percent of the total population by that year.

“This has profound implications in that, should the government implement policy to educate and provide jobs for the burgeoning population, the Philippines could capitalize on its demographic advantages to raise economic output,” it said.