LIMITED investments in the country and the uncertainty of inflation in the event that oil prices normalize immediately are touted as the “main risks” to the country’s strong and stable economy in 2015, an international banking giant said.
In its quarterly review of Asian economies, Hongkong and Shanghai Banking Corp. (HSBC) said that, although it remains optimistic for the Philippines versus other countries in the region, some factors remain concerns for the Philippine economy.
Among these factors include unaddressed investment growth and short-term supply shocks that may lead to inflation worries toward the middle to the latter part of the year.
“Limited investment remains a concern. The private-public partnership initiative has been sluggish at best. The administration has promised to raise infrastructure investment, but, thus far, key shortages, such as electricity and air transport, remain unaddressed,” HSBC said.
The British banking giant added that this lag in investment will drag down the economy’s competitiveness, as well as its output potential.
“We expect public investment to slow and private consumption, as well as private investment, to pick up the slack. Should government spending slow more than expected and household expenditure weaken [not our assumption], growth may slow sharply,” HSBC warned.
Meanwhile, the bank said that inflation is an additional risk, more particularly on the electricity prices in the coming months—noting that the government has already projected an electricity shortage for this year.
“The decline of oil prices has helped to offset price risks from various supply-side constraints. However, should the peso weaken sharply and the oil rise again, inflation could bounce back sharply,” HSBC said.
Other risks to the country’s sustained growth momentum is the country’s ability to productively absorb its working age population through the creation of more jobs while its population rapidly rises, and the expectation of a “policy paralysis” due to the upcoming 2016 elections.
“President Aquino’s term will end in 2016. Filipinos will go to the polls in May 2016, and the upcoming 2016 presidential elections will be on both investors’ and politicians’ minds. We expect investment to be cautious in the lead-up to the presidential election, while private consumption should be robust,” the bank said. HSBC earlier forecast a 6-percent growth for the country in 2015.