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HSBC hikes Philippine GDP growth forecast to 6.5%

Lawrence Agcaoili - The Philippine Star
HSBC hikes Philippine GDP growth forecast to 6.5%
In a virtual press conference, James Cheo, chief investment officer for Southeast Asia at HSBC, said the gross domestic product (GDP) growth forecast for the Philippines was raised to 6.5 percent from the original target of 5.7 percent as domestic consumer spending is seen supporting the recovery with the further reopening of the economy.
AFP / File

MANILA, Philippines — British banking giant HSBC is now looking at a faster economic growth for the Philippines this year despite the impact of the supply chain disruptions and the Russia-Ukraine war.

In a virtual press conference, James Cheo, chief investment officer for Southeast Asia at HSBC, said the gross domestic product (GDP) growth forecast for the Philippines was raised to 6.5 percent from the original target of 5.7 percent as domestic consumer spending is seen supporting the recovery with the further reopening of the economy.

This is still lower than the revised seven to eight percent target penned by economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC).

“The good news is that drivers of the Philippine economy are still intact. Both private consumption and investment have been rebounding sharply. Foreign worker remittances have continued to rise, and the government is progressing with the next round of infrastructure projects. We believe that both of these growth drivers will support the Philippine economy to grow by 6.5 percent in 2022,” Cheo said.

After emerging from the pandemic-induced recession with a GDP growth of 5.7 percent in 2021, the Philippines posted a stronger-than-expected expansion of 8.3 percent in the first quarter   amid the continued reopening of the economy from strict COVID quarantine and lockdown protocols.

The country slipped into recession with a GDP contraction of 9.6 percent in 2020 as the economy stalled when the government imposed the longest and strictest lockdown in the world.

“In the Philippines, the reopening will drive growth for the rest of 2022, with domestic consumer spending boosting momentum. Although the new administration’s economic policies are still fluid, there will likely be continuity in terms of broad macro policy, such as big infrastructure spending,” HSBC said in a statement.

According to the British banking giant, the good news is that drivers of the Philippine economy are still intact as both private consumption and investment have been rebounding sharply.

Likewise, the bank said that remittances from overseas Filipino workers (OFWs) would continue to rise and that the government would pursue the next round of infrastructure projects.

“Infrastructure, one of the key drivers of the Philippine economy, is expected to grow at a robust pace for the rest of this year and going into next year. Public investment has already been improving, and should continue to gain traction as the government progresses with some key infrastructure projects,” it said.

As inflation quickened further to a three-year high of 5.4 percent in May from 4.9 percent in April, HSBC said the Philippines continues to face the headwind from high commodity prices given that it is one of Asia’s largest oil and gas importers and a sizeable food importer.

“The inflationary impact will limit the recovery in consumer spending and result in a sharper degree of monetary policy tightening,” HSBC said.

HSBC is expecting another 25- basis- point hike in June and another 50- basis- point hike in the third quarter to dampen inflation expectations.

“Thereafter, we anticipate the RRP to gradually increase by 25 basis points each quarter until the third quarter of 2023, after which the policy rate will normalize at four percent,” Cheo said.

According to the British banking giant, the peso is seen depreciating further to 53.50 to $1 by the end of 2022.

“We see the peso-dollar drifting higher through the quarters, which is not unusual given Philippines’s current account deficits. We expect foreign exchange to end the year at 53.50 to $1,” HSBC said.

Fan Cheuk Wan, chief investment officer for Asia at HSBC, said HSBC Global Private Banking now forecasts global GDP growth decelerate to 3.4 percent in 2022 and 2.9 percent in 2023, down from HSBC expects global energy shock and supply chain challenges to push up global inflation to 7.5 percent this year before moderating to 5.1 percent next year.

“The world has faced several structural shocks and investors need to reposition their portfolios to adapt to these challenges. The COVID crisis, Russia-Ukraine war and sustainability revolution are disrupting supply chains, labor markets, energy sources and infrastructure. These structural changes will require significant investments that will ultimately help boost growth, but this will also push up costs and cause inflation to become stickier than witnessed in the past decade,” Fan said.

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