Top Story

By Bettina Faye V. Roc, Sub-Editor

Philippines expected to outperform peers

Posted on November 14, 2014

GROWTH among emerging Asian economies is expected to be robust over the medium term -- with the Philippines now expected to outpace its ASEAN-5 peers in terms of expansion in the next five years -- even as domestic and external risks remain, the Organization for Economic Co-operation and Development (OECD) said.

Money sent home by Filipinos abroad remains a key support of the economy. -- AFP
In a report, titled “Economic Outlook for Southeast Asia, China and India 2015: Strengthening Institutional Capacity”, released yesterday at the last day of the ASEAN Business and Investment Summit in Nay Pyi Taw, Myanmar, the OECD said growth prospects “look favorable overall” in emerging Asia -- consisting of Southeast Asia, China, and India -- over the next five years, with gross domestic product (GDP) growth in the region seen averaging 6.5% annually from 2015 to 2019. This is slightly slower than the 6.9% average GDP expansion OECD had forecast over 2014-2018 in the 2014 edition of its outlook report.

“Although growth in emerging Asia will moderate gradually due to the slowdown in China, for the 10 ASEAN countries as a whole, growth momentum remains robust and broadly similar to that of the past 10 years, averaging 5.6% in 2015-19.”

China’s growth is seen averaging at 6.8% in the next five years, substantially slower than the 7.7% print expected for 2014-2018 last year.

OECD also previously saw expansion among the 10 ASEAN economies at 5.4% in 2014-2018.

Among the smaller grouping of ASEAN-5 economies -- composed of the Philippines, Indonesia, Malaysia, Thailand, and Vietnam -- the Philippines is seen leading the pack, with GDP growth seen averaging 6.2% annually over 2015-2019, up from the 5.8% forecast OECD gave for 2014-2018.

The government expects economic growth to reach 6.5-7.5% this year, 7-8% next year, and 7.5-8.5% by 2016. The Philippine economy has seen stellar growth in the past two years, expanding 7.2% and 6.8% in 2013 and 2012, respectively.

The economy expanded at a faster-than-expected 6.4% in the second quarter compared to the downwardly revised 5.6% seen in the first three months of the year, but still slower than the 7.9% recorded in the April-June period in 2013. This brought the first semester average to 6%, slower than last year’s 7.7%. The government is scheduled to announce third-quarter GDP data on Nov. 27.

In second place among ASEAN-5 economies is Indonesia, with annual GDP growth seen by OECD averaging 6% in the next five years. Previously, that country was seen as the bloc’s best performer at that same rate of expansion expected from 2014 up to 2018.

“Indonesia’s economy will be supported by robust domestic demand and expectations of reform -- with the Jokowi administration possibly rationalizing the fuel subsidy,” OECD said.

“Another economy driven by domestic demand, strongly supported by remittances from overseas and political stability is the Philippines, where growth is expected to be favorable in the medium term,” the group added in its report.

“The success of measures to create jobs, reduce unemployment and improve infrastructure will be key to sustained growth,” it stressed.

On the other hand, Malaysia is expected to grow by 5.6% in the next five years (from 5.1% for 2014-2018); Thailand by 4.1% (from 4.9%); and Vietnam by 5.7% (from 5.4%).

OECD noted that risks remain for emerging Asian economies.

“Potential external risks include changes to US monetary policy, the Chinese economic slowdown, structural policy changes in Japan, and growth prospects in the Euro area. However, these factors will have only a moderate impact on the region,” the group said in its report.

“Domestic political risks include those related to the newly elected governments in India and Indonesia, and the current unrest in Thailand.”

It said that the acceleration of regional integration -- in particular towards the goal of establishing the ASEAN Economic Community by end-2015 -- would be essential to the growth prospects of individual economies, as this would help narrow disparities among countries.

“Growth depends on the success of key regional initiatives, such as reducing the Common Effective Preferential Tariffs and improving trade facilitation, accelerating the development of institutional arrangements like investment frameworks, deeper financial integration, education, infrastructure and greater progress on narrowing regional disparities,” OECD said.

“Integration should also address a broader range of issues in future, including topics like environment and green growth,” the group added.

Governments across the region also need to beef up their capacities to implement their policies more effectively, as well as further public sector reforms, such as those concerning fiscal management, especially for middle- and lower-income countries.

Focus on making growth more inclusive is likewise needed in order to bring more of those in the informal sector into the fold and within governments’ reach, OECD said.

This was also among the main challenges the OECD cited in the Philippines’ case, as it noted that while the economy has performed well over the past few years, progress has not been made in improving inclusiveness in the country.

“Increased competitiveness is critical for the Philippines’ continued growth and job creation, but more effort is needed to bring about change in the key sectors for this transformation,” it said.

“Tourism and SMEs hold great potential for driving future growth, but appear to be under-performing,” the report noted

“A resilient and accessible financial system is also critical, but has been slow to improve its inclusiveness.”

OECD likewise noted that while the Philippines’ services and manufacturing sectors continue to expand, further innovation is needed to “lay the basis for a high-tech economy.”

“Serious barriers in access to education and health hinder human capital development and fail to address the root causes of inequality,” it added.

“Social development must be further improved to ensure equal opportunity so that Filipinos may find decent jobs, acquire assets and lift their living standards.”