HSBC hikes 2016 GDP forecast to 6.3%

The Hongkong and Shanghai Banking Corp. Ltd. (HSBC) raised the country’s 2016 and 2017 economic growth targets to 6.3 percent amid a renewed sense of optimism in the administration of President Duterte.

HSBC economist Joseph Incalcaterra said the revised gross domestic product (GDP) growth target is higher than this year’s 5.9 percent and next year’s 5.8 percent.

“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 target is reached,” he said.

Incalcaterra cited the economic team under the Duterte administration that is looking at raising the budget deficit ceiling to three percent of GDP from two percent.

“The three percent deficit will be reached by a further increase in infrastructure spending and tackling underspending. The target will also likely be achieved thanks to income and corporate tax cuts, which will be only partly offset by plans for increased tax enforcement,” he said.

Incalcaterra said the fiscal plans of the new administration have important implications for growth.

“A budget deficit near three percent in 2017 will further support the Philippines’ already-robust growth trend. As we have stressed repeatedly, an increase in the longer-term growth outlook was always predicated on sustained infra- structure spending,” Incalcattera said.

The country’s GDP growth eased to 5.9 percent last year from 6.1 percent in 2014 due to weak global demand as well as lack of government spending.

In the first quarter, the growth accelerated to 6.9 percent from the revised 6.5 percent in the fourth quarter due to robust private consumption and improving government spending.

“As we mentioned earlier, the economic outlook for the Philippines is robust for the time being,” he said.

However, HSBC economist said there are longer- term issues that may come back to haunt the country if not resolved.

According to Incalcaterra, the Philippines has a structural trade deficit while manufacturing growth has yet to pick up substantially outside of electronics despite policy efforts to encourage other exports.

He said continued infrastructure growth is extremely important to help diversify the economy over the long run and increase productivity particularly in Metro Manila where the poor state of infrastructure and traffic issues has a clear impact on productivity and output.