PHL to remain growth leader in Asia

By Melissa Luz T. Lopez
Senior Reporter
THE PHILIPPINES is expected to remain a growth leader in Asia-Pacific, a regional think tank said, even as it flagged that the entire region could be threatened by a looming trade dispute with the United States.
The ASEAN+3 Macroeconomic Research Office (AMRO) sees Southeast Asian economies as well as Japan, China, Hong Kong and Korea growing by 5.4% this year, slightly slower than the 5.6% clocked in 2017.


Despite the slowdown, the think tank sees resilient domestic demand coupled with upbeat exports keeping the region as the center of world output growth.
The AMRO also expects the Philippines to remain one of the fastest-growing economies, with the local infrastructure push seen to unlock an even faster expansion. The think tank kept its growth forecast for the Philippines at 6.8% for 2018 and 6.9% for 2019 which was first pencilled in October. This is slightly higher than last year’s 6.7% growth although below the government’s 7-8% target.
However, there remains a huge scope to unlock a faster climb.
“It (growth) may go a bit higher but it very much depends on how fast they are able to disburse spending on infrastructure. Infrastructure spending is a good thing in the long run because it raises growth potential,” AMRO chief economist Hoe Ee Khor said on the sidelines of the agency’s report launch yesterday at the Marco Polo Hotel.

The current Philippine growth forecast is second to Myanmar’s seven percent and matches the pace expected for Cambodia and Lao PDR, according to the AMRO’s latest projections.
However, the AMRO pointed out that the Philippines may now be approaching a downturn and seeing a slowing credit cycle.
The Bangko Sentral ng Pilipinas (BSP), however, said this may not necessarily be the case as far as the domestic economy is concerned as investments actually build on potential growth.
“If you go into infrastructure you either avoid going into a contraction or a downturn because going into soft and hard infrastructure will tend either to prolong the late cycle or to bypass the late cycle and move to an early or even an early or mid-business cycle,” BSP Deputy Governor Diwa C. Guinigundo said during the AMRO’s joint seminar, a side event to the Asian Development Bank annual meeting.
‘US-ASIA WAR’
Threats of a trade war between the US and China stand as the biggest risk to regional growth, with the standoff seen to spill over to all Asian economies.
AMRO Director Junhong Chang said estimates showed that a “very limited” trade war among the world’s biggest economies could stunt growth in emerging markets by as much as 0.5%. The impact is stronger on advanced economies like Japan and Singapore, ranging from 0.2-0.8% of gross domestic product (GDP).
“The US trade war is in fact a US-Asia war with significant fallout on the rest of the world,” Ms. Chang said. “Let’s hope this scenario remains hypothetical.”
BSP Governor Nestor A. Espenilla, Jr. however, said that “deeper” intra-regional links will boost overall growth prospects.
“I believe that member states have positively leveraged on regional integration to retain their collective growth momentum. Integration has also provided the additional impetus for individual country growth,” the BSP chief said.
AMRO’s Mr. Khor also noted that diversification of exports has made the region “more resilient,” with growing demand within the region able to cushion the impact of external trade shocks. A surge in tourist arrivals would also support economic activity, but would require nations to invest in connectivity.
TIGHTENING NEEDED?
Mr. Khor also said that robust economic conditions signal the time to “start withdrawing” policy stimulus from central banks in the region at a time of rising global yields.
He noted, however, that a low inflation environment lends room to maintain an accommodative policy stance. Across the region, inflation is seen to average 2.1% this year, higher than 2017’s 1.8%.
The Philippines is expected to clock in the fastest pace of price increases at 4.3%, coming from 2017’s 3.2% under 2006 prices. Mr. Khor said the BSP needs to take steps to rein in inflation and keep the economy from overheating.
“We have seen that the central bank should take the signs of inflation and the external position in making a decision in interest rates… Already, the monetary conditions have tightened quite a bit,” the AMRO economist said.
“Certainly, I think the BSP is fully aware of the need to make sure that the economy moves back from overheating.”
“By doing a bit of tightening, it’s possible for inflation to come back down and for the current account to remain sustainable,” Mr. Khor added, even as he pointed out that the current account remains in a “good deficit” as it mirrors imports of capital goods.
The BSP will assess policy settings during their May 10 review, with some analysts noting that central bank officials have since taken a more hawkish tone than usual in the face of faster inflation.