PH economy in for a swing this ‘Year of the Monkey’

Many Asian economies are in for a rough ride this “Year of the Monkey” after having lost their swagger last year, but the Philippines remains one of the region’s “brightest growth stories,” according to top economists from British banking giant HSBC.

In a research note released on Friday, Hong Kong-based HSBC economists Frederic Neumann and Qu Hongbin said the new Chinese lunar new year—which will begin on Feb. 8—would be exciting for the Philippines. “The economy is relatively less vulnerable to the weak external factors weighing down growth in much of the broader region. The domestic economy is firing on several cylinders, namely private consumption, government spending, and private investment, shrugging off a drag from exports.”

HSBC expects the Philippines to grow its gross domestic product (GDP) by 5.7 percent this year and by 5.8 percent next year, coming from last year’s projected average growth of 5.6 percent. The peso, on the other hand, is projected to trade at P48.50 against the US dollar through 2016 and 2017.

While HSBC’s forecast is a notch lower than the consensus outlook of 5.8 percent, the economists expect this to be the second fastest growth in Southeast Asia next to Vietnam’s 6.7 percent. Malaysia is projected to grow by only 3.6 percent while Singapore, Indonesia and Thailand are projected to grow by 1.8 percent, 4.7 percent and 3.1 percent, respectively.

The economists said infrastructure spending needed to pick up speed if the government aimed at reaching its 7 to 8 percent growth target.

They said electricity and transport issues have to be addressed, otherwise these would drag down the country’s potential. “Coupled with this, the rapid increase of the population over the coming decades means that the Philippines must generate new jobs to productively absorb its potential labor force.”

“We have said for some time that the Philippines has the unique problem of not spending its funds quickly enough—and the government looks set to miss the targeted 2 percent budget deficit target in both 2015 and 2016. We see infrastructure spending as the bedrock of the Philippines’ growth outlook over the next decade,” the economists said.

Private investment has also displayed a steady trend, but a slight deceleration right before an election was expected due to uncertainties, the economists added.

Consumer spending, meanwhile, was supported by remittance inflows that continued to grow at robust levels amid the dollar volatility. The economists said private consumption was buttressed by better employment opportunities, partly on the back of government spending.

The economists also pointed to a mixed bag as far as external trade performance was concerned. On one hand, exports have declined due to weak external demand, but on the other, business processing outsourcing sectors have continued to bring in substantial foreign exchange.

Capital outflow was also cited as another key concern this year. While the Bangko Sentral ng Pilipinas (BSP) has ample foreign reserves to support the currency, the economists said the US Federal Reserve’s interest rate tightening could cause market volatility.

“That said, we believe soft external conditions and low inflation have motivated the BSP to tolerate some Philippine peso weakness, while keeping rates on hold for the foreseeable future if conditions permit. Although there are risks of higher food prices alongside El Niño, we believe the inflation outlook remains very benign,” the economists said.