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HSBC hikes growth outlook for the Philippines

February 18, 2016 - Prinz Magtulis, The Philippine Star

The Philippines scored a growth forecast upgrade from Hong Kong Shanghai Banking Corp. (HSBC) this year on the back of accelerated state spending, although outlooks remain below government targets.

HSBC now expects the local economy to grow 5.8 percent in 2016, a tad higher than the 5.7 percent it projected last month.

The same growth rate is seen for 2017, unchanged from the original outlook. Both forecasts fall below the government’s economic goals.

For 2016, gross domestic product (GDP) expansion is targeted to reach between 6.8 percent and 7.8 percent. The target is at a lower 6.6 percent to 7.6 percent the year after.

“From a supply perspective, there was a healthy pick-up in both services and industry, more than offsetting a decline in agriculture output streaming from El Niño-induced drought,” said HSBC economist Joseph Incalcaterra in a report on Wednesday.

Acceleration in government spending however was the top growth driver, especially on the last quarter of 2015 when the gross domestic product (GDP) grew 6.3 percent.

GDP is the sum of all goods and services created in an economy.

“This is somewhat below the government’s six percent target for the year, but the Philippines is nonetheless a relative out-performer in the region,” Incalcaterra pointed out.

“The strong momentum in government spending will be continued in the first half of 2016,” he added.

Remittances from overseas Filipinos, albeit slowing, will also continue to buttress domestic demand. HSBC said it only expects a “moderation” in growth that hit 3.7 percent as of November last year.

“While we forecast a moderation in remittances growth in the Gulf Region, growth is expected to remain steady elsewhere, which should offset the moderation,” he said.

The Bangko Sentral ng Pilipinas (BSP) sees remittances to rise 4 percent until 2019.

Strong growth could keep the BSP from tweaking policy rates, although HSBC said a 25 basis-point cut may still be happen within the year due to changes in policy operations.

“We have a 25 basis-point cut pencilled in for operational purposes due to the implementation of the interest rate corridor,” Incalcaterra said.