The Philippines should remain one of the bright growth spots in the region no matter the turbulent global events, as markets latch on with renewed optimism on the new administration under President Duterte, an international banking giant said.
In its Global Economics Report released on Tuesday, HSBC economist Joseph Incalcaterra said that, while the change of administration in the country was seen as an economic risk, President Duterte’s economic team and the agenda they carry provided relief to anxious markets and finally gave assurance of continued growth for the $285-billion local economy.
“The high pedigree of the appointees is a comforting sign for the markets and suggests that the Philippines will likely maintain its position as one of Asia’s brightest growth performers. The new administration is set to hit the ground running. Indeed, there have already been,” HSBC said.
Against this background, the bank hiked its growth forecast for the Philippines this year to 6.3 percent, up from only 5.8 percent in an earlier forecast announced in February.
HSBC’s recalibrated growth forecast falls within the government’s new growth target for 2016 ranging from 6 percent to 7 percent.
For next year, HSBC still projects growth hitting 6.3 percent, which means growth in 2017 should prove slower than the growth target ranging from 6.5 percent to 7.5 percent as announced on Tuesday.
“The fiscal plans of the incoming administration have important implications for growth. A budget deficit near 3 percent in 2017 [the first budget to be released by the incoming administration, likely in end-July], will further support the Philippines’s already-robust growth trend,” Incalcaterra said.
“As we have stressed repeatedly, an increase in the longer-term growth outlook was always predicated on sustained infrastructure spending,” he added.
While HSBC maintains its economic outlook for the Philippines as “robust” for the time being, the bank warned of long-term issues coming back that could pull down the country, if not immediately resolved.
“The Philippines has a structural trade deficit, and manufacturing growth has yet to pick up substantially outside of electronics, despite policy efforts to encourage other exports,” the economist said.
“Continued infrastructure growth is extremely important to help diversify the economy over the long run and increase productivity, particularly in Metro Manila, where the poor state of infrastructure and traffic issues has a clear impact on productivity and output,” he added.
The Philippines accelerated by 6.9 percent in the first quarter this year, an improvement from 6.5 percent in the fourth quarter last year and 5 percent in the first quarter a year earlier.