Business World, 14 July 2013
HONG KONG and Shanghai Banking Corp. Ltd. (HSBC) has hiked its 2013 economic growth forecast for the Philippines — even as it cut projections for other Asian countries — on the back of government spending and remittances expectations.
“In contrast to slowing growth elsewhere, timely policy actions, coupled with rising income and population, boosted growth in 2012 and 1Q 2013,” the bank said, adding that robust private consumption, steady remittances and strong government spending were also factors.
However, it noted that “while the Philippines managed to fend off the impact of sluggish global growth well in 2012 and Q1 2013, it’s not yet in the clear. External headwinds are intensifying, especially with weakness from China and persistent pessimism in the euro zone.”
Exports — down 6% as of May, short of the government’s goal of 10% growth — continue to decline due to weak global demand and will “likely … be weak for the remainder of the year.”
“This means that growth will be increasingly domestic led,” HSBC said.
It said the main drivers of growth for the Philippines for this year would continue to be private consumption — supported by remittances — and public expenditures as well as appropriate monetary policy.
“Remittances are expected to be robust thanks to a resilient demand for Filipino workers,” HSBC added. “We expect the amount of inflows to expand by 6.0% in 2013, which would support private consumption.”
Bangko Sentral ng Pilipinas (BSP) data show remittances at $6.916 billion as of April, up 5.7% from a year ago. The BSP expects remittances to grow by 5% this year from the $21.391 billion notched last year.
“Government spending will also step in to support domestic demand. It rose in 1Q, thanks to mid-term election spending. For the remainder of the year, we expect healthy increase of government expenditure of around 10%,” HSBC said.
Public spending stood at P751.213 billion as of May, 12.4% more than the P668.39 billion disbursed in the same period last year.
Loose monetary policy amid a benign inflation outlook will also support domestic growth, HSBC said.
“Thanks to an abundant food supply and low global commodity prices, inflationary pressures have been contained … We expect headline inflation to trend below the BSP’s target in the next six months, assuming no food supply disruptions,” it said.
“Monetary policy will also step in to help. Main policy rates are expected to stay steady for the remainder of the year. The SDA (special deposit accounts) rate will also stay put for the time being.”
In its last policy-setting meeting in June, the Monetary Board maintained overnight borrowing and lending rates at record lows of 3.5% and 5.5% respectively, and also kept SDA rates at 2% across all tenors.
HSBC’s updated Philippine forecasts came as it slashed projections for other Asian countries, mainly due to the region’s “rising debt and falling productivity”.
Asia excluding Japan, it said, is now expected to grow by only 6.1% this year instead of the 7.2% initially forecast.
“Years of reckless growth have finally taken their toll, sapping the region’s energy and raising the risk of a stumble,” the bank said.
Risks to expansion have likewise been heightened by China’s recent credit-tightening and the US Federal Reserve’s announcement that it could start scaling down its quantitative easing program.
“While not being strong enough to knock out Asia altogether, the recent turmoil nevertheless raises the pressure on local officials to face up and administer some bitter medicine,” HSBC said.
“What’s needed to revive vitality and confidence is a heavy dose of structural reforms, administered without delay. These will prove painful to digest, at least initially, but are essential to put Asia on the path of lasting prosperity.”
