BRITISH BANKING GIANT HSBC sees the Philippines keeping afloat despite a tough global economic environment and high consumer prices that will likely cap economic growth for the full year at 4.6-4.7 percent, or about the same pace of expansion in the first semester.
In a briefing on Friday, HSBC Philippines chief executive officer Mark Watkinson said that while the country could not rely so much on exports now as it had in previous years, the country could attain a steady growth range of 5-6 percent over the medium term on robust overseas Filipino remittances that, in turn, would buoy domestic consumption, as well as bright prospects in tourism and business process outsourcing (BPO).
He added that the local banking system, which has significantly improved its asset quality with the bulk unloading of soured loans in recent years, could also help perk up the local economy. The country’s proximity to economic powerhouse China is likewise seen as a significant impetus to growth.
“I think that GDP (gross domestic product) growth this year will run about the same number (in the first semester) at 4.6-4.7 percent, but if you look at the numbers around the globe that’s not bad,” Watkinson said.
“I remain quite optimistic that the Philippines can perform well in this difficult environment,” he said.
In a market briefing, HSBC treasurer Wick Veloso said the external financial environment remained challenging, given the US’ problems with mortgage giants Fannie Mae and Freddie Mac, two firms which own or guarantee about half of the United States’ $12-trillion mortgage market.
On the other hand, he said the commodity price bubble has likely burst, led by global crude which fell past a crucial $110-a-barrel mark to $107 on Friday. Only a few months ago, oil prices had shot up to a record-high of $147.
But as the softening of global oil prices was happening alongside the strengthening of the dollar against an index of major currencies, Veloso said the oil sensitive peso was now more under pressure from the greenback’s upward momentum.
“Lower commodities are more likely to be offset by weaker currency. Inflation can ease, but still at high single digit levels,” Veloso said. He said the Bangko Sentral ng Pilipinas would likely remain pro-active but, to avoid choking the economy, pause in its interest rate increases at 6.25-6.5 percent this year, suggesting a little more tightening from the current overnight borrowing rate of 6 percent.
Battling a 17-year high inflation rate, the local central bank has jacked up its overnight borrowing rate by a total of 100 basis points (one percentage point) over the last three months.
“Inflation will definitely come down,” Watkinson said. The central bank said last week it’s possible that the inflation rate might have peaked in August at 12.5 percent. Its earlier expectation was that the worst may occur in September and October. Lower inflation eases pressure on the cost of consumption and doing business in the country.
“Domestic consumption is the story. It’s what gives us some level of optimism,” Watkinson said.
“One component of that is, we are blessed that we have OFW (overseas Filipino worker) remittances remarkably growing and many are from the Middle East rather than the US. There’s also a growing mix of people going abroad with much higher talent level,” he added.
