BRITISH banking giant HSBC sees the Philippine economy growing at a slower pace this year in anticipation of more cautious investment spending ahead of the 2016 presidential turnover.
In a research note issued on Monday, HSBC economist Trinh Nguyen projected that the country’s gross domestic product (GDP) growth this year may decelerate to 5.4 percent from an estimated 5.7 percent last year.
While lower spending costs arising from a benign inflation environment could keep private consumption robust, Nguyen said sluggish investment could drag down growth.
With the slowdown in global oil prices, Nguyen said private consumption growth could be buoyed by direct savings from lower fuel prices as well as improved food supply compared to 2014, inflows of remittances and easy credit.
“Investment growth, however, is expected to be sluggish, as sentiment turns cautious ahead of the 2016 presidential elections,” Nguyen said.
“Fiscal spending, although expected to pick up slightly, will likely fall short of the amount allotted for 2015. Therefore, we expect 2015 growth momentum to slow to 5.4 percent,” she said.
The Philippines, one of Asia’s fastest growing economies, grew by 7.2 percent in 2013 and 6.8 percent in 2012. In the first three quarters of last year, GDP averaged at 5.8 percent.
The country’s trend growth rate in the last five years of the Aquino administration stands at 6.2 percent, higher than the 4.8-percent average growth rate during the nine-year Arroyo administration and the 2.3-percent growth rate during the short-lived Estrada administration.
The concern among many investors now is whether the next administration would sustain the governance reforms started by the Aquino administration.
On consumer price trends, the HSBC economist noted that, after a year of negative supply shocks, the Philippines’ fortunes were being reversed by lower oil costs.
After the inflation rate eased to 2.7 percent year-on-year in December, HSBC sees average inflation slowing to 2.4 percent this 2015.
In 2014, Philippine inflation rate averaged at 4.1 percent, still within the government’s inflation target range of 3-5 percent. This marked the sixth consecutive year that the average inflation rate was within the government target.
“The fall in oil prices is a welcome respite in the Philippines, as the economy was beleaguered by supply shortages in 2014. The electricity and transportation sectors will still likely be overstretched in 2015, but lower oil prices could help counterbalance this,” Nguyen said.
She attributed the softening of December 2014 inflation to a reduction in fuel and food costs.
“Consumers and the economy are set to enjoy an income boost. This, coupled with more ample food supply and a favorable base effect, should mitigate the expected shortages of electricity, allowing inflation to slow this summer,” she said.
Despite tightening measures in 2014, Nguyen noted that liquidity had increased due to continued outflow from the special deposit account (SDA).
In 2013, the BSP restricted access to SDA, a very potent mopping up tool alongside increases in interest rates last year.
“With inflation within the 2-4 percent target, we expect the BSP to keep rates low,” she said.