Hongkong and Shanghai Banking Corp. raised its growth forecast for the Philippines this year and next to 6.7 percent from 6.5 percent, on the back of robust private consumption and investments.
The British bank cited in a report Monday the significant contribution of consumption and investments to the third-quarter economic growth of 6.9 percent, faster than what most economists expected.
“The Philippines remains on solid ground as one of Asia’s growth leaders, and it will likely stay in that position in 2018 as well. The country contributed to Asia’s host of upside surprises on growth in the third quarter of 2017, expanding an impressive 6.9 percent year-on-year…,” it said.
It said the composition of this growth suggested that the country was “firing on all cylinders,” with all expenditure components contributing positively for the first time since 2014.
“With this growth dynamic expected to continue, we have raised our GDP forecasts to 6.7 percent for 2017 and 2018 from 6.5 percent for both years. Further, we expect the economy to remain robust in 2019, with growth moving up to 6.8 percent for the full year,” it said.
HSBC said private consumption and fixed investment contributed 3 percentage points and 2 ppt to growth in the third quarter, respectively, making up the lion’s share of economic expansion.
The bank said aside from consumption and investment, government spending was a substantial contributor to growth this year, adding 0.9 ppt in both the second and third quarters, far above the long-term trend of 0.4 ppt.
“This in an important development, if it persists, as it could suggest that the government is finally curbing its historical pattern of underspending,” HSBC said.
HSBC expects public construction to expand further in 2018 as the government embarks on a more aggressive infrastructure program and boosts infrastructure spending to 7.2 percent of GDP by 2022.
“However, private construction will need to remain a steady contributor to investment, or it could become a drag on growth in 2018,” it said.
The economy grew 6.9 percent in the third quarter, driven by higher fiscal spending, robust domestic demand and investments. This brought GDP growth in the first three quarters to 6.7 percent, within the government’s official target range of 6.5 percent to 7.5 percent this year.
The International Monetary Fund maintained its bright growth outlook for the Philippines this year and 2018 but warned that a combination of high credit expansion, buoyant private investment and fiscal expansion without tax reform could lead to overheating of the economy.
“The outlook for the Philippine economy is favorable despite external headwinds. Real GDP growth is projected at 6.6 percent in 2017 and 6.7 percent in 2018, owing to continued robust domestic demand,” it said.