Philippine economy likely to grow by slower 6% in 2019 — HSBC

MANILA, Philippines — British banking giant HSBC sees the country’s economic growth momentum further losing steam due to the global growth slowdown, the trade war between the US and China as well as tight liquidity and higher rates in the domestic front.

In a press conference, Cheuk Wan Fan, chief market strategist for Asia at HSBC Private Banking, said Philippine economic growth may slow down to six percent this year before recovering to 6.2 percent in 2020. HSBC said the Philippines likely grew by 6.2 percent in 2018.

 “So we anticipate the economic growth in the Philippines to stay relatively resilient in line with the synchronized global slowdown. We expect a growth rate of six percent for the Philippine economy in 2019,” she said.

Economic managers via the Cabinet-level Development Budget Coordination Committee (DBCC) see the economy growing between seven and eight percent this year after lowering last year’s target to a range of 6.5 to 6.9 percent for last year.

Fan said the slower GDP growth could be attributed to tight domestic liquidity and higher interest rates.

 “We expect private consumption in the Philippine to remain robust this year due to easing inflationary pressures and a potential pick up in remittances growth,” she added.

HSBC sees inflation easing back to the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) at 3.8 percent this year from 5.2 percent last year.

Rising inflationary pressures prompted the BSP to raise interest rates by175 basis points in five straight rate-setting setting meetings from May to November before pausing in December.

The British bank sees the central bank raising interest rates by another 25 basis points as early as the first quarter due to the second round increase in the excise tax on oil products under Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

Fan said HSBC sees the peso weakening further to 54 to $1 in end of 2019 after shedding 5.3 percent to close 2018 at 52.58 to $1 from 49.93 to $1 in end 2017.

 “We expect a more stable peso this year given the BSP is expected to approach the end of a tightening cycle as well. So we only expect one more interest rate hike by the BSP in the first quarter of this year as we expect inflation will start to further ease in 2019,” Fan said.

HSBC Private Banking global chief market strategist Willem Sels said peaking US rates, easing dollar strength and China’s policy stimulus would offer positive tailwinds for emerging markets and Asian assets this year.

 “We believe that one needs to try to find the right balance, because it is dangerous to be too bullish, but also to be too bearish. It is clear that there is a global slowdown, but it should be mild, and we expect global equity markets to sustain earnings growth at high single-digit,” Willem said.

After a turbulent 2018, he said bearish expectations, lower valuations, and conservative investor positioning should help see an equity market bottom in the coming months, and recover later on in 2019.

 “The higher US interest rates that triggered market sell-offs in 2018 have been priced in, and US Treasuries should start to trade in range. Further significant market correction from current levels would require large shocks such as a recession, a European sovereign crisis or a Fed policy mistake, but we do not believe these risk events will materialise,” he said.