PHL growth to slow, outdo many in Asia

by Janine Marie D. Soliman, Businessworld, Apr 7, 2017

PHILIPPINE gross domestic product (GDP) growth will likely ease this year — the only Southeast Asian economy that will do so from 2016 — in the face of external headwinds, but the country will still outperform many in Asia and most regional averages, according to the Asian Development Bank’s (ADB) latest estimates.

The Asian Development Outlook 2017: Transcending the Middle-Income Challenge which ADB published yesterday showed the regional lender retaining its 6.4% GDP growth projection for the Philippines this year which it first penciled in December 2016.

Philippine economic growth is then expected to pick up to 6.6% next year.

Those projections come from 2016’s actual 6.9% — upgraded yesterday by the Philippine Statistics Authority (PSA) from a preliminary 6.8% reading reported in late January, on upward adjustments in mining and quarrying, public administration and defense, construction, and compulsory social security — and compare to government targets of 6.5-7.5% and 7-8% for this year and 2018, respectively.

ADB said it expects robust household demand — which contributes nearly 70% to GDP — the government’s infrastructure buildup, as well as strong private and public investments that fueled Philippine growth in 2016 to anchor the economy this year against external headwinds.

“The Philippines is the only economy in Southeast Asia projected to see lower growth in 2017, as smaller remittances from the Gulf states and lower demand from trading partners offset a healthy rise in domestic consumption and investment,” the report read.

COMPARISONS

Philippine projections compare favorably against most regional averages for this year and next.

Specifically, the 6.4% Philippine projection for this year compares to Southeast Asia’s 4.8%, East Asia’s 5.8%, Central Asia’s 3.1%, the Pacific’s 2.9%, as well as Developing Asia’s (a category embracing all ADB’s 45 members) 5.7% and 6.3% for Developing Asia excluding “newly industrialized economies” (NIEs) China, Hong Kong, Singapore, South Korea and Taiwan.

South Asia, however, will see a faster 7.0% average.

Next year will see the Philippines’ projected 6.6% compare to Southeast Asia’s 5.0%, East Asia’s 5.6%, Central Asia’s 3.5%, the Pacific’s 3.3%, as well as Developing Asia’s 5.7% and Developing Asia excluding NIEs’ 6.2%.

Again, only South Asia will fare better with a 7.2% average for 2018.

The picture is mixed, however, when viewed within Southeast Asia, with the less-developed economies of Cambodia, Laos and Myanmar outpacing the Philippines both for 2017 and 2018.

Still, among Southeast Asian peers the Philippines is frequently compared with, only Vietnam will do marginally better at 6.5% and 6.7% for this year and next, respectively.

Two Asian giants to which the Philippines is compared are also expected to do generally better.

China’s economy is projected to grow by 6.5% this year before slowing to 6.2% in 2018, from 6.7% last year.

India is seen as one of the fastest-growing major Asian economies, expanding by 7.4% this year and by a faster 7.6% in 2018 from 7.1% in 2016.

INFLATION, GROWTH DRIVERS, RISKS

The general increase in prices of goods and services used by Philippine households is expected to remain supportive of economic growth.

ADB sees Philippine inflation picking up from 2016’s 1.8% to 3.5% this year on “rising international prices for oil” and 3.7% in 2018 that compare to the Bangko Sentral ng Pilipinas’ downgraded forecast full-year averages of 3.4% and 3.0%, respectively, and 2-4% target range for both years.

Philippine inflation picked up to a nearly-two-and-a-half-year-high 3.4% last month from 3.3% in February and the 1.1% recorded in March last year. The resulting 3.2% first-quarter average is lower than the central bank’s downgraded 3.4% forecast average for the entire 2017.

“As inflation approaches the upper end of the central bank target range of 2-4%, monetary policy will aim to strike a balance between supporting growth and containing inflation,” ADB said in its report.

“The central bank will have to factor into this delicate balance the future course of US interest rates,” it added; hence, “[a] measured hike in the central bank policy rate is likely.”

ADB also explained that GDP growth will likely ease to 6.4% in 2017, partly on “rising commodity prices that could affect domestic demand”.

“Growth is expected to recover to 6.6% in 2018 because the government plans to further ramp up public infrastructure investment as well as second-round effects of fiscal spending in 2017,” ADB Principal Country Specialist Joven Z. Balbosa said in a press conference at the ADB headquarters in Mandaluyong City on Thursday.

“Key drivers that what we are seeing in 2016 are the same things moving forward.”

The administration of President Rodrigo R. Duterte, who took office at noon of June 30 last year and who steps down on the same date in 2022, hopes to spur economic growth on to a faster lane and lift more Filipinos out of poverty besides.

The administration plans to increase spending on infrastructure to an equivalent of 7.1% of GDP by 2022 from a programmed 4.3% of GDP in 2015 and from 1.8% in 2010, according to the December issue of EconomyPH of the government’s Investor Relations Office. This year’s P3.35-trillion national budget programs spending on public infrastructure to increase 13.79% to P860.7 billion equivalent to 5.4% of GDP in 2017 from P756.4 billion, or 5.1% of GDP, in 2016. The administration expects to spend up to P9 trillion from 2017 to 2022 to plug the country’s infrastructure gap.

Private consumption, ADB added, “will continue to rise robustly, though at a moderate pace than last year.”

ADB Senior Economist Arief Ramayandi said in yesterday’s briefing that “[m]ost of the risks are basically coming from policy directions from the advanced economies…”

“The Philippine economy situation is pretty much the same: risks come from outside the Philippines. One is the US interest rate increase,” he said, referring to up to two more hikes by the US Federal Reserve that are widely expected this year following 25-basis point increases each in December 2015 and 2016, as well as last month, after nearly a decade of near-zero levels. —