Standard Chartered cuts PHL growth outlook, citing slow pickup in investment

STANDARD CHARTERED Bank lowered its growth forecast for the Philippines this year to 4.6%, citing the slow pace of the recovery in private investment as well as the delayed pickup in the government’s infrastructure program.

The new forecast is much lower than the 6.1% estimate it gave in January and is also below the government’s 6-7% target. Meanwhile, the bank expects growth of 6.6% in 2022.

“Private investment is likely to be very subdued given that most corporates are still at overcapacity and the demand outlook is very soft. That puts the onus on the government,” Chidu Narayanan, an economist for Asia at Standard Chartered, said.

Mr. Narayanan said the bank does not expect a substantial increase in infrastructure investment this year.

Philippine first quarter gross domestic product declined 4.2% after the record drop of 9.6% in 2020.

In the three months to March, capital formation, or the investment component of the economy, fell for a fifth straight quarter, declining 18.3%.

“We think the earliest that Build, Build, Build infrastructure will pick up substantially will be mid-third quarter. So sometime in August, is when we expect a pickup in infrastructure investment,” Mr. Narayanan said.

Consumption is also likely to remain muted in the second half, he said. Despite continued support from remittances and with middle-income workers able to work from home and continue earning income, Mr. Narayanan said cautious sentiment is preventing consumption from gaining traction.

Household spending, which makes up about 70% of the economy, continued to decline, falling 4.8% in the first quarter, which represented a slowdown in the contraction after a 7.3% fall in the fourth quarter.

Mr. Narayanan said the bank expects the central bank to maintain policy rates at record lows until the end of 2022 and to keep up support for the economy while economic activity remains muted. The bank expects the economy to return to pre-pandemic level output by the second half of 2022.

“I think it’s just way too early to be discussing (the central bank) normalizing policy. We will have to see a growth pick up… a return of activity to pre-COVID levels, labor market strengthening and the overall sentiment picking up substantially,” Mr. Narayanan said.

Central bank officials have promised to keep monetary policy loose until the recovery becomes more sustainable, which they expect to happen around the second half of 2022. — Luz Wendy T. Noble