Foreign banks downscale Philippines growth forecasts

by Lawrence Agcaoili (The Philippine Star) – Nov 7, 2018

MANILA, Philippines — British banking giant HSBC and Maybank Kim Eng Group have slashed their economic growth forecasts for the Philippines amid tighter monetary conditions.

HSBC has lowered its gross domestic product (GDP) growth projections for the Philippines to 6.5 percent for 2018 and 2019, according to its economist Noelan Arbis.

“We’ve lowered our growth forecast for this year and next from 6.7 percent and 6.8 percent, respectively, to 6.5 percent for both years due in part to recent and still-expected monetary tightening. Greater-than-expected tightening would thus pose further downside risks to growth,” Arbis said.

The country’s economic growth eased to its slowest level in three years at six percent in the second quarter from 6.6 percent in the first quarter, bringing the average to 6.3 percent in the first half.

This prompted the Development Budget Coordination Committee (DBCC) to lower its GDP growth target to a range of 6.5 percent to 6.9 percent from the original target of seven to eight percent.

Inflation remained steady at 6.7 percent in October, bringing the average to 5.1 percent in the first 10 months and exceeding the BSP’s two to four percent target.

“We also expect the 150 basis points of policy tightening this year and potential future tightening to eventually have an impact on growth, which suggests a degree of prudence required,” Arbis said.

He said the government’s “non-monetary” response affords the BSP an opportunity to hold off on policy tightening at its upcoming meeting on Nov. 15.

“Meanwhile, risks to inflation remain tilted to the upside in the future. As such, we believe it would best serve the BSP to save its monetary policy bullets until we see further signs of demand-side pressures and/or a catalyst that could lead to higher inflation expectations in the future,” Arbis said.

According to Arbis, the BSP could raise interest rates by 25 basis points in the first quarter of 2019 due to the impact of rising wages in November and potentially additional taxes in January.

Chua Hak Bin, senior economist at Maybank Kim Eng Group, told participants of the Executive Forum on 2019 Economic Outlook the GDP growth of the Philippines would ease to 6.3 percent in 2018 before recovering to 6.5 percent in 2019 from 6.7 percent in 2017.

The projected GDP expansion of the Philippines would be slower than Vietnam’s 6.8 percent but faster than Indonesia’s 5.2 percent, Malaysia’s 4.8 percent, Thailand’s 4.5 percent, and Singapore’s 3.4 percent.

Chua said positive factors in the country include resilient GDP growth, low public and external debt as well as favorable demographics.

However, he said markets are uncomfortable with inflation risks as well as the widening trade and current account deficits.

Maybank Kim Eng Group said the BSP is likely to hike interest rates by 50 basis points more this year and another 50 basis points next year as inflation is seen averaging 5.5 percent in 2018 before easing to 4.8 percent in 2019.