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S&P expects economic growth to remain solid

S&P Global Ratings expects the Philippine economy to grow at an average of 6.5 percent annually over the next two years, despite the tension in Mindanao and adverse developments overseas.

The debt watcher said in a report Tuesday that strong domestic demand would remain a main driver of expansion this year and next.

“The economic growth story continues to appear solid for now, while inflation is trending comfortably within the target band for now,” S&P said.

“Strong domestic demand will continue to drive a solid GDP expansion at around 6.5 percent annually over the next two years,” it said. In particular, S&P expects the Philippine economy to grow 6.6 percent this year and 6.4 percent in 2018.

It said despite some geopolitical headwinds and the escalation of tension in the south (Marawi conflict) and the embargo imposed on Qatar which were putting pressure on remittances and overseas jobs, these issues appeared largely self-contained and were unlikely to cause a major hit to the Philippines’ overall economic growth.

S&P, however, warned that risks to global trade and investment flows could provide some headwinds to growth―either from rising protectionism or geopolitical tensions (both external and domestic). 

S&P said uncertainties around these issues as well as Fed rate normalization could also bring capital outflow risks, especially now that commodity prices had eaten into the current account surplus. 

Meanwhile, British bank Hongkong and Shanghai Banking Corp. said it was expecting the Philippine economy to grow 6.5 percent both for 2017 and 2018 driven mainly by strong private consumption and sustained remittances.

Cheuk Wan Fan, managing director and head of HSBC’s Investment Strategy and Advisory, said in a briefing in Makati City that the deceleration from the 6.9-percent growth last year was due to an expected deficit in the current account this year.

Latest Bangko Sentral data showed that current account in the first quarter reversed to a deficit of $318 million from $730-million surplus a year ago, as the trade in goods deficit widened on the back of the faster growth in imports.

The gross domestic product grew 6.4 percent in the first quarter, slower than 6.9 percent a year ago and 6.6 percent in the fourth quarter of 2016, in the absence of robust spending that happened in the run-up to the presidential elections last year. 

The first-quarter expansion, however, remained one of the fastest in the region behind China’s 6.9 percent. The government earlier predicted a 6.5 percent to 7.5 percent GDP growth in 2017.

GDP grew 6.9 percent last year, near the upper bound of the government’s target range of 6 percent to 7 percent.

Economists from First Metro Investment Corp. and University of Asia & the Pacific said in a joint report the Philippine economy still had the potential to grow 7 percent this year despite the lackluster performance in the first quarter.

The economists said the expansion would be driven by the expected recovery of consumer spending, public construction and sustained strength of remittances.

Remittances account for around 10 percent of gross domestic product annually. Total remittances last year reached a record $26.9 billion, a 5-percent increase from 2015.

Topics: S&P Global Ratings , Philippine economy , economic growth , gross domestic product , GDP
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