By Imee Charlee C. Delavin, Reporter

Philippines to post above 6% growth, economist of Swiss private bank says

Posted on May 17, 2016

THE PHILIPPINE economy would likely grow above 6% this year and in the near term, falling short of the low end of official targets this year, but is still poised to be one of the region’s fastest, an economist at a Swiss private bank said in a recent interview.

A boost in gov’t spending will also hike the Philippines’ growth estimates, an economist at a Swiss private bank said. Robust growth may also further worsen traffic in Metro Manila as seen in this photo. -- AFP
The country’s gross domestic product (GDP) growth came in at 5.8% last year boosted by domestic demand and private investments, although missing a 7%-8% target for 2015.

This year, the country is seen expanding by 6.8%-7.8%, a trimmed target that was announced by economic managers in February amid global headwinds such as China’s slowing expansion and the impact from a slump in global oil prices.

“Philippine economic growth will be above 6% both this year and next and will still be among the major and fastest growing in the region,” said Mark Matthews, head of Research Asia at Switzerland-based Julius Baer.

“Three years in a row of above 6% growth would make it the fastest growing economy in the region ... it will post the biggest growth because China, even though it is growing above 6%, we know it’s going to go down to 6%, 5.5% and further to 5.5%,”Mr. Matthews added.

The Philippines is currently “in a very virtuous cycle,” with a fairly resilient economy backed by a robust domestic consumption that remains fueled by remittances from Filipinos abroad, the expanding middle class, a vibrant business process outsourcing (BPO) sector, and an additional spur from election spending.

“Consumption I think is the major driver here... there are two big engines of growth which are investments and consumption. Basically because [it] has very inadequate infrastructure and has a very big, and young population, there’s powerful consumption. So it’s really consumption... with investment just going half speed, thankfully, [it has] this big consumption engine,” Mr. Matthews said.

However, any boost in government spending will raise the GDP forecast, Mr. Matthews added.

Both lower-than-programmed state spending and an export slump weighed on the country’s economic output in 2015’s first quarter.

But a stable improvement in government expenditures -- coupled with steadily robust household consumption that contributes up to 70% to national output -- helped fuel growth to 5.6%, 6.1% and 6.3% in succeeding quarters, resulting in a 5.8% full-year expansion that was, nevertheless, still slower than 2014’s 6.1%.

Of the P3.002-trillion national budget for this year, the Philippine government has allocated P760 billion -- equivalent to 5% of GDP -- for infrastructure.

Mr. Matthews said the stigma of “Sick Man of Asia” associated with the Philippines “is gone” and the country is “better positioned than the others”.

Despite threats that may cut inflows from Filipinos abroad with the recent decline in oil prices, the Julius Baer economist said oil prices will not go down to the levels seen at the start of the year. Petroleum costs “will start to stabilize at a level which could be good enough that the people over there can keep their jobs.”

“I think the other thing that’s important about remittances is that over the years [Filipinos working overseas] are becoming skilled workers and it’s spread all over not just concentrated in the Middle East,” he said, noting that “in a couple of years” the BPO sector will also surpass remittances.

Meanwhile, Mr. Matthews allayed fears over the Philippine elections, noting that “whoever takes over the government will do good.”

“I think whoever wins will turn out okay. I think a lot of people are worried but I think it would be fine. There will be initial period of 100 days where investors are going to say we have to know who this people are. Are they gonna do things differently, but I don’t think anyone will do that. People will just wait for uncertainty to subside,” he said.

In a related development, Mr. Matthews noted that the US Federal Reserve will not be raising interest rates this year due to “global developments.”

“I think this year, they won’t raise rates. The reason I say that is in the [March] minutes, the word “global” was written 23 times... the fact that global was mentioned 23 times shows that Fed’s traditional dual mandate of domestic inflation and domestic unemployment is out the window, and they can now point to what they perceive as problems in the rest of the world as excuses not to raise rates even though inflation and unemployment are basically at the level where they should be raising rates.”

“This Federal Reserve is far more dovish than any Federal Reserve since World War II and they will let their economy run hot,” the Julius Baer economist added, noting that the US Fed could also cite the upcoming “Brexit” on June 23 as another reason to push back any plans in the world’s largest economy to raise interest rates.

“I think as a whole, the tone in Asia is good this year. One key variable I think is that interest rates will remain low, another key variable is oil price which I believe is no longer going to go down.”

Nonetheless, Mr. Matthews said that it would be a major risk if the Federal Reserve does start raising interest rates in the months ahead and should oil prices go down further.

The International Monetary Fund has earlier projected Philippine economy to grow 6.2% to reflect the more challenging external environment.

The Asian Development Bank also forecast the country’s GDP to rise 6% from 6.3% previously due to a “highly uncertain” external environment.