HSBC sees lower GDP, inflation this year

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    Following the historically high volatility in the first half of this year, HSBC Private Banking positions for a staggered and U-shaped recovery after COVID-19.

    Due to a sharp decline in private consumption and fixed investment, the Philippines GDP is forecast to drop by 3.9 percent in 2020 before recovering to 7.0 percent growth in 2021.

    “We have reduced our Philippine GDP forecast for 2020 to -3.9 percent and expect economic growth to rebound to 7.0 percent in 2021. The Bangko Sentral Pilipinas (BSP) has reduced policy rates by 175 basis points (bps) since the start of the year, bringing the policy rate to a record low of 2.25 percent. The BSP has also cut RRR for banks by 200bps and has provided additional liquidity to the market through purchases of government bonds in the secondary market and direct repo operations of government securities. We expect another 25 bps policy rate cut to 2 percent and 200 bps of RRR cuts to 10 percent by the end of this year,” Fan Cheuk Wan, Chief Market Strategist for Asia of HSBC Private Banking, said.

    Fan added headline inflation remains muted as COVID-19 exerts downward pressure on global prices.

    “Our inflation forecast is likely to remain below 3 percent and within the BSP’s 2-4 percent target range for the rest of the year. We forecast full-year inflation to average 2.3 percent in 2020 and 2.6 percent in 2021,” Fan said.

    Fan said HSBC stays neutral on Philippine equities and focus on quality stocks exposed to the recovery in private consumption and fixed investment after COVID-19,” adds Fan.

    “On the currency front, the peso has been one of the very few among emerging markets to appreciate against the dollar in the first half of this year. After its outperformance, we believe rich valuations, narrowing nominal yields, and deteriorating fiscal metrics will point to peso weakness. We forecast the peso to trade at 50.50 against the dollar by the end of this year,” Fan added.

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