British banking giant HSBC says that the Philippines remains resilient despite weak demand in Asia.
In the bank’s latest research note, HSBC economist Joseph Incalcaterra said the Philippines is in a different position as it is less sensitive to the deterioration in external demand and is not as dependent as other members of the Association of Southeast Asian Nations.
“The Philippine economy is still a bright star in a dim sky,” he said.
Incalcaterra said the economic growth of the Philippines would continue to be supported by increased government spending in the coming quarters.
He reiterated that history suggests private consumption strengthens before elections and Filipinos would elect a new president as well as other national leaders in May next year.
The country’s GDP growth slowed down to 5.3 percent in the first half of the year from 6.4 percent in the same period last year on the back of weak global demand as well as lack of government spending.
Economic expansion picked up to 5.6 percent in the second quarter from the revised five percent in the first quarter amid improved public spending.
“Exports did detract from overall growth, but the drag was easily offset by robust household consumption, private investment, and government spending. In short, the Philippine economy is firing on several cylinders,” he added.
HSBC said the Bangko Sentral ng Pilipinas (BSP) would closely monitor remittances from Filipinos living and working abroad as these fuel private consumption.
The growth of cash sent home by overseas Filipinos slipped to 0.5 percent in July.
Incalcaterra added the BSP is closely monitoring the impact of the prolonged El Niño on inflation that eased to a new record low of 0.6 percent in August from 0.8 percent in July.
“That said, the BSP remains vigilant and is likely looking through the August print to potential future headwinds. In particular, the El Niño effect poses acute risks to food output and may exacerbate food prices, which make up 39 percent of the consumer price index basket, disproportionately impacting the poorer elements of the Philippine population,” he said.
According to him, all key meteorological agencies state with relative certainty that El Niño conditions have been met and that its intensity would surpass the last destructive El Niño in 1997.
Latest assessment from the United States National Oceanic and Atmospheric Administration (NOAA) sees a 95 percent possibility of El Niño continuing through the 2015-2016 winter and a high possibility of El Niño lasting through the spring.
Accordingly, dry weather and drought conditions are expected to persist over the next few months.
Likewise, he warned base effects would lift inflation back into the BSP target range of two percent to four percent and it would likely oscillate within that range for next year as the effects of the plunge in oil prices wear off.
Despite the improvement in the Philippines’ external sustainability metrics, Incalcaterra said the BSP remains vigilant of the US Federal Reserve which is expected to raise interest rates in December.
“Large-scale outflows from the Philippines are unlikely, but uncertainty surrounding the Fed’s lift-off (we think December) is yet another factor that favours the BSP maintaining the status quo,” he added.
The BSP’s Monetary Board kept interest rates unchanged since 24 September.