ATTAINING a 7-percent to 8-percent annual gross domestic product growth will remain almost an elusive dream for the government unless infrastructure spending is sustained for a longer period of time, British bank Hongkong and Shanghai Banking Corp. said in a report Friday.
“For the government to reach its 7-8 percent growth target, infrastructure spending needs to be sustained for longer. Moreover, public-private partnership projects should be accelerated, and the government needs to do more to attract FDI [foreign direct investments],” HSBC said.
“We see infrastructure spending as the bedrock of the Philippines’ growth outlook over the next decade. Private investment has also displayed a steady trend in recent quarters. However, we tend to see a slight deceleration in investment right before an election due to uncertainty surrounding the outcome—which isn’t missing this time around as the race heats up,” HSBC said.
HSBC predicted that GDP growth this year would slightly improve to 5.7 percent from an expected 5.6 percent in 2015. It said 2017 growth would hit 5.8 percent.
“The Philippine economy remains one of Asia’s brightest growth stories. The economy is relatively less vulnerable to the weak external factors weighing down growth in much of the broader region. The domestic economy is firing on several cylinders, namely private consumption, government spending, and private investment, shrugging off a drag from exports,” it said.
The bank said private consumption accounted for over 70 percent of nominal GDP. Consumer spending is supported by remittance inflows, which continue to grow at robust levels in peso terms—despite some recent volatility in headline US dollar growth.
“Moreover, private consumption is buttressed by better employment opportunities, partly on the back of government spending. As for government spending, expenditure has picked up speed—growing 19% y-o-y in 3Q—thanks chiefly to infrastructure spending,” it said.
However, the bank said the government had the unique problem of not spending its funds quickly enough—“and the government looks set to miss the targeted 2 percent budget deficit target in both 2015 and 2016.”
It said exports had plummeted due to external weakness while imports surged due to imports of capital goods needed for infrastructure. Meanwhile, it said the services sectors, especially business processing and outsourcing, were important export industries that should provide sustainable foreign exchange earnings for the Philippines.
Economic growth averaged 5.5 percent in the first three months of 2015. GDP grew to a sluggish 5 percent in the first quarter due to the government’s anemic fiscal expenditures that started in the third quarter of 2014 at the height of the controversial Disbursement Acceleration Program of the administration.
The economy recovered in the second quarter, growing by 5.6 percent before accelerating to 6 percent in the third quarter.