Poll uncertainties to deter investors

ROBUST consumer and election spending would bring about a slight uptick in economic growth next year, but uncertainties brought by the national elections—especially the most recent developments on two presidential candidates—might deter the entry of more investors, The Hongkong and Shanghai Banking Corp. (HSBC) said on Monday.

“With private consumption expected to stay strong throughout the election cycle, we forecast growth to increase slightly in 2016,” HSBC economist Joseph Incalcaterra said in a note titled “Wake me up when 2015 ends.” The government had projected gross domestic product or GDP growth of 7 to 8 percent in 2016, faster than the “realistic” 6 to 6.5 percent expansion expected this year.

But while the upcoming election would bolster both government and private expenditures, it is also seen to push investors on the sidelines as they adopt a wait-and-see stance.

“[T]he large degree of election uncertainty, particularly concerning the disqualification of former leading candidate Grace Poe—a decision that she is appealing—and the rise of Davao City Mayor Rodrigo Duterte, a candidate who has yet to elaborate an economic agenda, may result in more subdued private investment over the next two quarters,” Incalcaterra said.

“[O]ur analysis of past electoral cycles shows that this is almost always the case,” he pointed out.

Also, Philippine monetary authorities will unlikely tweak policy rates during its last meeting for the year this Thursday as inflation would likely settle below target by yearend.

Incalcaterra said that despite the scheduled Monetary Board meeting on monetary policy following the US Federal Reserve’s meeting that is expected to jack up interest rates, the Bangko Sentral ng Pilipinas “is unsurprisingly constrained in terms of its course of action.”

“[T]here is little need to tweak policy at this point. The BSP has clearly indicated that it is comfortable with its current stance and we think it is unlikely to make any tweaks until the operational changes pencilled in for the second quarter of 2016 (interest rate corridor),” Incalcaterra explained.

“Moreover, activity and inflation data out over the past month suggest no need for policy changes, while liquidity is more than sufficient to fuel growth,” he added.

Incalcaterra noted that inflation or the rate of increase in the prices of basic goods rose to 1.1 percent last November from the record-low of 0.4 percent posted in the two preceding months.

“As we mentioned last month, inflation likely troughed in October but will stay contained despite some upside risks to food CPI (consumer price index) from El Niño. Indeed, food prices jolted 1 percent month-on-month in October,” he said.

Last month, the faster jumps in the prices of corn, fish, meat and vegetables offset the slower increases in the prices of cheese, eggs, milk, non-alcoholic beverages and rice, the National Economic and Development Authority had noted.

The Department of Finance attributed the pickup in November inflation to the “sharp rise in vegetable prices as a result of Typhoon ‘Lando,’” which hit many parts of Luzon island, including farms and plantations, last October.

The HSBC economist nonetheless sees higher food prices tempered by cheaper fuel in the CPI. “[T]he most recent leg down in oil prices should help keep a lid on things for the foreseeable future,” Incalcaterra said.

According to Incalcaterra, “[h]eadline CPI is set to undershoot the 2 to 4 percent target in 2015 and should stay comfortably within range for 2016,” citing that the BSP last month lowered its projections to 1.4 percent for 2015 and 2.3 percent for 2016. In end-November, the year-to-date headline inflation rate stood at 1.4 percent.