2017 growth seen at 8-10% as Duterte hits stride -- UA&P

Posted on November 23, 2016

THE ECONOMY could hit growth levels of as much as 10% in 2017 on the strength of the government’s 10-point economic agenda, with consumption-driven expansion fueled by low inflation and a mild interest-rate environment, economists from the University of Asia and the Pacific (UA&P) said.

UA&P economist Dr. Victor A. Abola said “the target is doable,” with President Rodrigo R. Duterte’s blueprint for the economy on track for effective implementation, with much of his agenda being acted on.

The three months ended September represent Mr. Duterte’s first quarter in office, with positive outcomes seen in the economy. GDP was up 7.1% year on year in the third quarter, he said.

Mr. Abola added that the post-election period showed a surge in government spending, reflecting the 10-point agenda’s focus on infrastructure and rural development. “It is gaining a lot of momentum,” he said.

UA&P’s Dr. Bernardo M. Villegas added that 6%-7% growth levels will be considered “mediocre.” “We have to demand 8-10% growth from the Duterte administration,” he said.

He added that an 8-10% range in the next few years should not be a surprise, as the economy has been transitioning to consumption and investment-led growth for the past few months.

He said that the 8% level is conservative. “It is no big deal,” Dr. Villegas said. “India is growing 8% despite political chaos, Myanmar grew 8% despite the corruption, Sri Lanka grew 8%-10% in the last 5 years.”

Domestic demand-driven growth was evident, with Dr. Abola saying that investment is key to fueling this.

“The main driver of the economy is investment, with above 10% growth for 13 of the last 16 quarters,” he said.

Dr. Abola said that the growth is backed by increased foreign direct investment and overseas remittances, despite investor uncertainty brought about by Mr. Duterte’s rhetoric against the US.

“It is also supported by FDI. We will end up this year over P7 billion worth of investment,” he said, noting that despite these levels lagging those of Malaysia and Thailand, “It is a good amount for us, and it will add growth to our 7% base estimate.”

Dr. Villegas said that the investment-led growth is driven by the manufacturing sector, and he noted that it was just the beginning. “By the time Japanese infrastructure materializes, South Korea will follow, and then Taiwan.”

He expects the manufacturing sector to lead the way with a projected 8.6% growth rate.

For Dr. Abola, “Another important reason why consumption is growing, (is) a remarkable decrease in poverty incidence. 3.4 million people were out of poverty in the three years to 2015.” He is optimistic that the government will reach its target of 6 million people out of poverty by end-2017.

“[This] will be a good driver for consumer spending,” he said.

He also noted that low inflation contributes to strong domestic demand. “There is continuing low inflation at 1.8% in 2016.” He sees inflation picking up to 2.6% in 2017.

Dr. Villegas said growth will be sustainable due to the bullish Business Process Outsourcing (BPO) sector. “We have generated 1.2 million jobs and $25 million (in revenue), growing 15% every year, he said.

Dr. Villegas also expressed his firm belief that the BPO sector will never leave the Philippines, even if president-elect Donald J. Trump enacts protectionist policies. “The Philippines is unbeatable in the BPO sector,” he said.

He added that with the K-12 program, the economy will have more capable young English speaking graduates to work in the BPO sector.

Dr. Villegas told BusinessWorld that aside from the bullish BPO sector, a tremendous push in tourism would serve to support the growth forecasts.

He said that the Philippines’ ASEAN chairmanship in 2017 would create opportunities for investment here. -- E.J.C. Tubayan