Foreign banks see pickup in second half, GDP back on track

FOREIGN BANKS said they expect the Philippines to achieve gross domestic product (GDP) growth of about 6% this year, representing the low end of the national government’s target range of 6-7%, with second half investment helping offset the impact of the four-month delay in this year budget.

“Continued delays in government spending imply that GDP growth in 2019 is likely to be subdued compared to previous years. We expect full-year growth of 6.0%, factoring in a considerable pickup in investment in the second half,” HSBC Global Research said in a report.

HSBC noted that it expects the Bangko Sentral ng Pilipinas (BSP) to adjust monetary policy to boost growth, with an anticipated 25 basis-point cut in policy rates at the next Monetary Board meeting in August and another 25 basis-point cut in the fourth quarter.

“We expect monetary policy to step in and support growth. We forecast a 25bp cut in 3Q (likely on 8 August), in light of our expectation for tepid 2Q GDP growth (reported on the same day as the BSP meeting). We also expect another 25bp rate cut in 4Q and a 25bp cut in 1Q20 given our expectation for 50bp of rate cuts from the Fed by end-2019,” HSBC said.

“This would enable the BSP to unwind some of its policy rate hikes in 2018 and further support growth. Policy rate cuts, in addition to bank reserve requirement cuts and a pickup in government spending, should further lift growth in 2020, when we forecast full-year growth to bounce back up to 6.4%,” it added.

Standard Chartered Bank Asia Economist Chidu Narayanan meanwhile said in its Global Focus- Economic Outlook Q3 2019 that he is expecting a steady growth of 6.1% for this year caused by easing monetary policy and boost in public infrastructure spending.

“We expect steady overseas remittance growth of 3-5% over the next 12 months, supported by solid economic growth in the US and the rest of Asia. Tourism receipts are likely to increase over the next six months as tourist destinations that were shut down in 2018 for clean-ups are reopened; tourist arrivals from China and Korea, the two biggest sources, were already higher in Q1,” Mr. Narayanan said.

Mr. Narayanan said StanChart sees a 75-bp cut in policy rates before year’s end, to help reverse the 175-bp hike made last year to combat rising inflation which peaked in the second semester of 2018. The BSP has since reduced policy rate by 25 bp in May, and BSP Governor Benjamin E. Diokno has signaled a policy rate cut in the second half of 2019.

“We expect inflation to fall below 2% in H2, giving BSP room to cut policy rates further. We see another 75-bps (worth) of rate cuts this year, following an initial cut in May,” Mr. Narayanan said.

Meanwhile, Nicholas Antonio T. Mapa, senior economist at ING Bank Manila, said, “With 2Q GDP expected to remain subdued on lingering effects of rate hikes and budget delays, first half growth will likely slip below 6% as the speed bump hits home. 2H growth however appears to offer some hope as the Philippines attempts to achieve escape velocity and get growth back on a higher trajectory (6-7%).”

“Lower policy rates working in tandem with decelerating inflation will also boost already potent household consumption while the government implements catch up spending to complete the push for escape velocity. If the Philippine economy is able to get all three channels of growth up and running, we could see the Philippines post a strong 2H GDP growth performance both on the consumption and investment front, which should help the economy return to and remain in an elevated growth path of 6-7%,” Mr. Mapa added. — Reicelene Joy N. Ignacio