HSBC trims Philippine growth forecasts

MANILA, Philippines - The Hongkong and Shanghai Banking Corp. (HSBC) slashed the country’s economic growth projections amid the weaker-than-expected expansion in the first half due to weak global demand and lack of government spending.

In a report titled Resilient, but not Immune, HSBC economist Joseph Incalcaterra said the country’s gross domestic product (GDP) growth forecast has been lowered to 5.5 percent from 5.6 percent this year and to 5.6 percent from 5.9 percent next year.

The country’s GDP growth eased to 5.3 percent in the first half from 6.4 percent in the same period last year due to weak global demand and lack of government spending.

“Slower-than-expected government spending did not help. We forecast GDP to slow in 2015 to 5.5 percent, below 2014’s growth rate of 6.1 percent,” Incalcaterra said.

The economist said the Philippines continues to stand out as an outperformer in Asia. “The country is relatively shielded from the rapid deterioration in external sentiment that has impacted many regional economies,” he said.

According to Incalcaterra, steady remittance inflows, robust services exports, an improvement in government spending, and ample liquidity should help maintain growth in the short term.

Over the longer term, he added the country would benefit from a positive demographic transition if it can make the proper investment in both hard and soft infrastructure.

He explained the Philippines is not immune to weak global demand as the contracting exports wiped out almost 3.8 percentage points from the country’s domestic output as measured by the GDP.

“On one hand, export growth slowed, while imports unexpectedly accelerated despite savings from weaker oil prices,” he said.

He added the country’s strong consumption trends have been further boosted by the fall in oil prices. As a net importer of oil, historically, the oil trade balance has punched a large hole in the country’s overall trade balance.

“Given the dependence on imported petroleum for domestic consumption, the fall in the total value of imports is substantial. This should lead to lower transport and household costs, easing inflationary pressures,” the economist said.