British lender Hongkong and Shanghai Banking Corp. on Tuesday upgraded its growth forecasts for the Philippines over the next two years on the Duterte administration’s plan to boost infrastructure spending.
HSBC raised its 2016 growth outlook to 6.3 percent from an earlier estimate of 5.9 percent and the 2017 growth forecast to 6.3 percent from 5.8 percent.
“The fiscal plans of the incoming government have important implications for growth. A budget deficit near 3 percent [of gross domestic product] in 2017 [the first budget to be released by the incoming government, likely in end-July], will further support the Philippines’ already-robust growth trend,” HSBC said in a report Tuesday.
The bank said an increase in the longer-term growth outlook would be predicated on sustained infrastructure spending.
“The short-term impact on investment and employment leads us to upgrade our 2016 and 2017 GDP forecasts to 6.3 percent for both years, from 5.9 percent and 5.8 percent previously, assuming the [budget deficit] target is reached,” it said.
The Development Budget Coordination Committee raised the budget deficit ceiling in 2017 to 3 percent of GDP from less than 2 percent over the past several years under the Aquino administration.
HSBC said the 3-percent deficit would be reached by a further increase in infrastructure spending and tackling underspending.
It said the target would also likely be achieved through income and corporate tax cuts, which would be partly offset by plans for increased tax enforcement.
The bank said the infrastructure push would also likely lead to a continued rise in imports, which would place pressure on the current account. HSBC said the current account surplus was expected to moderate to 1.3 percent of GDP in 2016 and 0.9 percent in 2017.
“Fortunately, incoming President Duterte’s economic team is intent on sustaining the infrastructure drive, which is reassuring. The Philippines has made great strides in improving fiscal transparency and increasing the quality of spending,” HSBC said.
The bank, however, warned that some longer-term issues should be resolved to ensure that economic growth would be sustained.
It said aside from structural trade deficit, the growth of the manufacturing sector needed to pick up substantially outside of electronics, despite policy efforts to encourage other exports.
Diokno on Tuesday said the government expected the economy to grow between 6 percent and 7 percent this year, slower than the previous administration’s target of 6.8 to 7.8 percent.
He said growth in 2017 would likely settle between 6.5 percent and 7.5 percent, slightly lower than the previous target of 6.6 percent to 7.6 percent.