News Analysis: Foreign banks see slower but steady growth for the Philippines

Some multinational financial institutions have lowered their growth forecast for the Philippines this year but have remained optimistic about the country's steady growth despite uncertainties in the global financial market.

In its latest report, the British bank Standard Chartered forecast a 5.7 percent growth in gross domestic product (GDP) of the Philippines this year, slower than the low-end target of the government of 6 percent.

On Thursday last week, Director General Arsenio Balisacan of the National Economic and Development Authority (NEDA), the country's highest economic policy-making body, admitted that with the 5.6 percent expansion of the Philippine economy in the second quarter, the country would not be able to achieve its earlier target of 7 percent to 8 percent full-year growth in 2015.

Balisacan said that the government will now settle for a 6 percent to 6.5 percent yearend growth.

Standard Chartered said that steady levels of investments both by locals and foreigners would help prop up growth in the Philippines this year.

"The domestic economy remains solid. Philippine household consumption outperformed that of other Southeast Asian economies over the past four to five years," the bank said in a report to clients.

Following the second quarter growth of 5.7 percent, U.S. banking giant JP Morgan Chase upgraded its growth forecast for the Philippines this year but it is still below government's target.

In a research note issued Aug. 27, Singapore-based JP Morgan chief economist for Southeast Asia Sin Ben Ong said that the country is now expected to grow its economy by 5 percent from its previous forecast of 4.1 percent in 2015.

Ong noted that like the rest of the region, exports in the second quarter declined quarter-on-quarter.

"However, despite the slowdown in external demand, domestic demand has remained unexpectedly robust and this strength runs against the conventional narrative that incomes from exports tend to drive domestic demand, especially investment," Ong said.

On a related development, the Washington-based Institute of International Finance (IIF) said that the Philippine economy could withstand external volatility and domestic risks brought about by uncertainties in next year's elections.

In a July report, entitled "Philippines: Resilient Despite Risks," the IIF said it expected the country to post "slightly stronger growth in the second half [of 2015] despite global uncertainties."

According to the report, the Philippines experienced impressive economic growth over the last couple of years, but output slowed recently with disappointing trade and public consumption.

It said that government spending should however pick up in the second half which should help the country's gross domestic product (GDP) to rebound along with strong private consumption and investment.

The IIF said that the Philippines is "likely to be more resilient than its Asian peers given its conservative fiscal policy, robust balance of payments and relatively small exposure to global capital flows."

"The Philippines should be less affected than other Asian economies by a tightening in emerging market financing conditions due to its high current account surplus and relatively insulated capital account," the IIF said.

Earlier, Trade and Industry Secretary Gregory Domingo said that the Philippine economy will prove to be resilient and will be able to withstand the weakness in the global financial markets given its sound fundamentals and a diversified economy.

"Overall, our economy is more resilient because the Philippines is really growing fast. Secondly, our banks are adequately capitalized and thirdly, the country has a small budget deficit that allows us to have enough policy space," Domingo said.

Meanwhile, government and private forecasts showed that inflation will likely remain subdued in August as fuel and food prices stayed low, barely moving from year-ago levels.

The inflation is expected to further slide down to 0.5 percent in August from July's 0.8 percent. Official inflation figure for August would not be released until the end of this month.

This year's average inflation rate is expected to be below the target range of 2 percent to 4 percent of the Bangko Sentral ng Pilipinas (BSP), the country's central bank. Endi