HSBC sees Philippine growth below 6% in 2016-17

MANILA, Philippines – The Hongkong and Shanghai Banking Corp. (HSBC) sees the country’s economic expansion falling below six percent over the next two years amid the severe El Niño, low level of infrastructure spending, and uncertainty in the global financial market.

HSBC economist Joseph Incalcaterra said the gross domestic product (GDP) growth is expected to accelerate to 5.7 percent this year and 5.8 percent next year from the projected 5.6 percent this year.

The latest GDP growth projection is slightly higher than the previous forecast of 5.5 percent for 2015 and 5.6 percent for 2016.

“The Philippine economy remains one of Asia’s brightest growth stories. The economy is relatively less vulnerable to the weak external factors weighing down growth in much of the broader region,” Incalcaterra said.

“For the government to reach its seven percent to eight percent growth target, infrastructure spending needs to be sustained for longer. Moreover, public-private partnership projects should be accelerated, and the government needs to do more to attract foreign direct investments,” Incalcaterra said.

Incalcaterra said the low level of investments in the Philippines despite several public private partnership (PPP) projects remains a concern.

“While the PPP initiative has proven to work, it has been sluggish at best. Across the country, key shortages such as electricity and transport remain unaddressed. This would drag down the economy’s competitiveness as well as output potential,” he said.

Incalcaterra said another major concern is the capital outflow brought about by the interest rate lift off in the US.

He said the Bangko Sentral ng Pilipinas (BSP) has ample foreign reserves to support the peso.

“That said, we believe soft external conditions and low inflation have motivated the BSP to tolerate some peso weakness, while keeping rates on hold for the foreseeable future if conditions permit,” Incalcaterra said.

HSBC sees inflation rising to 2.6 percent this year and to 2.8 percent next year from 1.4 percent in 2015. Last year’s inflation fell below the BSP target of two to four percent.

“Although there are risks of higher food prices alongside El Niño, we believe the inflation outlook remains very benign,” he said.