Get ready for higher interest rates as PHL failed to create more jobs, attract more investments – HSBC economist

The Philippine economy has seen strong growth over the past few years but has failed to create more jobs and induce more investments in infrastructure and agriculture, which in turn, tends to push consumer prices higher, an economist of British banking giant HongKong Shanghai Banking Corporation (HSBC) Limited said Tuesday.

 

As a result, the central bank will be forced to further raise interest rates as inflation continues to trend higher.

 

However, this will also help the economy draw more job-generating investments and induce more infrastructure spending.

 

Signs of growth fatigue are starting to eat up on Philippines given the strong growth rates in the past years, Hong Kong-based economist Trinh Nguyen said during HSBC Premier Personal Economy Forum in Makati City.

 

"The trend of Philippine growth rate has increased from 5 percent to 5.5 percent, but without increase in employment and supply like infrastructure, electricity and food... it will push prices higher," she said.

 

The Philippine economy grew by 7.2 percent in 2013, compared with 6.6 percent in 2012 and 3.7 percent in 2011.

 

In the first quarter, the GDP expanded by 5.7 percent as the economy reeled from the impact of Typhoon Yolanda.

 

Higher consumer prices will drive Bangko Sentral ng Pilipinas to raise interest rates, Nguyen said.

Higher interest rates bode well 

 

Bangko Sentral raised its policy rates by 25 basis points or 0.25 percent from record lows during the Monetary Board meeting last July 31 in response to inflation pressures.

 

Inflation in July rose by 4.9 percent, its fastest in nearly three years, as food prices spiked and the cost of utilities contributed to overall price increases for the month.

 

This brought the year-to-date average to 4.3 percent, which is at the upper end of the government target of 3 to 5 percent.

 

Nguyen noted a higher interest rate environment in the Philippines will bode well for the country as it will attract more investments, saying the global interest rate environment will stay low for a long time – at least until the third quarter of 2015.

 

With a slow economic growth on the global front, central banks of different countries will continue to inject more money in their respective financial systems, the economist noted.

 

"The global economy has not improved that much... Banks will have trillions and trillions of dollars looking for high yields, better investments elsewhere as the interest rates in their countries drop to near zero," she said.

 

"Philippine interest rates will rise modestly due to the fact that the Western economies are dragging their feet," she added.

 

Higher rates will also be a "fix" for the economy in the short-term, Nguyen said.

 

"The Philippine economy has saved up and is now a net saver economy – meaning investment is less than savings which means it has a current account positive," she said.

 

"Banks are flushed with cash... The Philippines, in many ways, has a very easy challenge moving ahead, which is to spend it," she added. – VS, GMA News