Economy starts to show 'signs of fatigue'–HSBC

Posted at 07/12/14 9:32 AM

MANILA - The Philippine economy is showing “signs of fatigue” in recent months, indicating a possible deceleration in the country’s growth momentum in the second quarter of the year, an international bank said in a regional research note.

In a note released on Friday, the Hongkong and Shanghai Banking Corp. (HSBC) said the Philippines may be reaching its limit after it slowed down significantly in the first three months of the year.

“After eight quarters of above 6-percent growth, the economy is showing signs of fatigue. First quarter GDP [gross domestic product] slowed to 5.7 percent year on year, from 6.3 percent in the fourth quarter of 2013. Sluggish government spending, reduced inventories and slowing household expenditure were the main reasons,” HSBC said.

“On the supply side, low agriculture production dragged down output, reflecting the lingering effects of Typhoon Haiyan [local name Yolanda],” it added.

HSBC also said early economic indicators already show that GDP momentum will likely decelerate further in April to June this year.

“In April public spending contracted, and both remittances and exports decelerated more than expected,” HSBC said.

The international bank projected growth to slow further to 5.6 percent in the second quarter of the year, while retaining its full-year forecast of 5.9 percent in 2014.

“Supply-side constraints are holding the Philippines back from sustaining above 7-percent growth rates. From rice to electricity, more production is needed to keep up with rising demand,” HSBC said.

The international bank added that more investments in agriculture, electricity generation and transport infrastructure would solve the Philippines’s supply shortages in the medium and long term.

HSBC also expects the central bank to raise its rates by 25 basis points twice this year, plus a further hike of another 25 basis points in the special-deposit account facility. The first rate hike is forecasted to fall in the next monetary-policy meeting of the central bank on July 31.

“History also shows that the BSP [Bangko Sentral ng Pilipinas] raises rates when inflation reaches the upper end of the target. We believe the BSP, thus, will have no choice but to tighten monetary conditions soon to temper inflationary pressures,” HSBC said.

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