HSBC sees corporate investment recovering in H2

MANILA, Philippines — Philippine companies could gradually revive investment spending in the second half as economic growth picks up and inflationary pressures ease, according to HSBC Philippines, after weaker revenues and higher costs squeezed corporate profitability earlier this year.

HSBC Philippines president and CEO Sandeep Uppal said the slowdown in the broader economy has been reflected at the company level, with weaker gross domestic product growth translating into softer revenue growth while elevated inflation pushed up input costs.

“That means their margins were squeezed. You can see that from the six-month results,” Uppal told reporters following HSBC Philippines’ flagship business summit yesterday.

“They didn’t come off a cliff, but profitability reduced. Which means that the corporate sector mostly uses its profitability to invest. So, if you are not profitable, you are not investing,” he said.

However, Uppal said HSBC expects the trend to begin reversing in the latter half of the year as economic activity improves and inflation either stabilizes or starts to ease.

Uppal added that the onset of the traditionally stronger consumption months beginning in September should provide another lift to demand, although the speed of the recovery would depend largely on business confidence and the ability of both the government and private sector to execute projects.

Despite the softer economy, he said overall credit demand remains broadly around historical levels, suggesting that companies have not pulled back sharply from borrowing.

HSBC is also seeing foreign capital continue to enter selected sectors, although the strength of investment remains uneven. Uppal said renewable energy has emerged as one of the clearest areas where investor interest is translating into actual commitments.

“Top of the house would be renewables. Clearly, across the economy, including among foreign investors, a lot of investment is going into renewables. There, we are seeing real money coming from overseas investors,” he said.

Global capability centers are another bright spot, with multinational companies continuing to establish operations in the country. Consumer-oriented foreign companies and new brands are also still entering the Philippine market, supported by the economy’s consumption-driven base.

HSBC chief Asia economist and co-head of global research Asia Frederic Neumann said the Philippine economy remains fundamentally healthy despite the recent slowdown, which he attributed largely to external shocks, higher energy and commodity prices and weaker government spending.

Neumann said the weakness could persist through the current quarter and possibly into the next, but HSBC expects economic activity to reaccelerate as energy and food prices normalize and government spending recovers.