Standard Chartered sees positive growth

Posted on September 19, 2013

PHILIPPINE ECONOMIC growth is expected to remain “above trend,” supported by domestic demand and investments in the country, Standard Chartered Bank said in a report published yesterday.

“The Philippine economy has been resilient so far in 2013, and GDP (gross domestic product) growth has exceeded expectations, in contrast with many other Asian economies,” the UK-based bank said in a report titled, “Asian sovereigns -- Key takeaways from investor trip.”

Officials of the bank conducted a “health check” on three Asian countries: Indonesia, Vietnam and the Philippines. They met with multilateral agencies, independent analysts, and quasi-sovereign corporates in the three countries.

Among the three countries Standard Chartered visited, the Philippines was tagged as a “positive outlier” on the back of remittances and the foreign exchange income generated from the business process outsourcing industry.

The Philippine economy expanded by 7.6% in the first semester, more than the 6.4% growth recorded in the same period last year and exceeding the government’s 6-7% target this year.

“We think growth will remain above trend in the near term, as domestic demand remains strong and investment activity has picked up,” Standard Chartered said.

The bank also sees the country’s growth to be sustainable, due to domestic consumption that has allowed the country to register a better-than-expected expansion in the first six months of the year and a healthy external position.

The country’s balance of payments (BoP) position stands at $3.677 million, as of July.

Standard Chartered noted that investment activity is led by the construction and manufacturing sectors, supported by the government’s push to boost infrastructure spending.

“Our base-case view is that the mining sector, which has significant potential, will not contribute substantially to GDP growth in the near term,” it added.

Moreover, the bank noted that the country’s external position should remain robust as foreign investors’ participation in the local debt market is low.

“Foreign participation in local debt markets is low compared to other ASEAN (Association of Southeast Asian Nations) countries, which reduces the risk posed by portfolio outflows. All of these factors result in favorable BoP dynamics,” Standard Chartered said.

The British banking giant also noted that the country’s banking system remains strong and stable. It cited a manageable nonperforming loan ratio (2.8%), the industry’s 18.4% capital adequacy ratio -- well above the central bank’s 10% minimum requirement -- and moderate credit growth of 12.3% as of the first semester.

“The banking system also has ample liquidity to finance potential demand of P210 billion from PPP (public-private partnership) projects in 2014,” it said.

On the other hand, Standard Chartered noted that “policy discontinuity” poses risks to the country.

“President [Benigno S.C.] Aquino III has focused on better governance and strengthening of institutions, which is positive for medium-term economic prospects. We see some risk of policy discontinuity after the 2016 presidential elections,” the bank said. -- A.R.R. Gregorio