Phl must develop mfg sector to absorb huge underemployment, says HSBC

MANILA, Philippines - The Philippines has to develop its manufacturing sector to be able to absorb the huge underemployment, and this fuel sustainable growth moving forward, according to the Hongkong and Shanghai Bank Corp. (HSBC).

Hongkong and Shanghai Bank Corp. (HSBC) managing director for Asian Economic research Frederic Neumann said that the Philippine economy cannot rely on remittances from overseas Filipinos and business process outsourcing/management (BPO/M) to fuel growth.

“In the long run, remittances will weaken, not enough to fuel among others consumption,” Neumann said.

Developing or reviving manufacturing would not only increase employment, and alleviate poverty. It would also produce export products, which could likewise be consumed in the domestic market.

But to do so, the country must continue to attract more investments, which requires structural reforms as well as faster infrastructure development, among others.

Neumann nonetheless expressed optimism that the country’s gross domestic product (GDP) has the potential to grow by another seven percent in the third quarter.

In which case, he noted it would be the fourth consecutive quarter that the economy would grow by over seven percent.

Neumann, however, expressed concern that the strong July imports growth of 8.7 percent could work against a seven-percent growth if high imports are sustained.

The Philippine economy is forecast to expand by 7.1 percent this year. However, its original 2014 outlook of 5.4-percent growth rate has to be revisited.

Neumann is outlook for next year’s growth was on the upside since a lot has happened since the forecast was made.

The Philippines is still the only Asian country in a “sweet spot.”

HSBC is also warning the Philippines that it must be able to “tame the enthusiasm of foreign investment and work as gate keeper to inflows.”

The HSBC managing director explained that structural reforms, particularly major infrastructural projects – whether under the public private program (PPP) or direct foreign investments, is important to be able to absorb investment inflows.

“Without the structural reforms, where will they put their money?”

Meanwhile, HSBC expects the US Federal Reserve (US Fed) to fully implement its so-called tapering by end year.

“It will be fast (implementation), which could last up to summer next year,” Neumann added.

But he assured that the impact of the US tapering would be softened by the Bank of Japan’s (BoJ) since it has been pumping money into the system amounting to an equivalent of $1.3 trillion.

That serves the Philippines well since Japan remains one of the country’s leading trade partners. And lately, Japanese financial institutions have been aggressive in forging alliances with Philippine banks for trade financing and other correspondent bank transactions.