Joblessness a blot on PHL’s growth lead

By Melissa Luz T. Lopez, Businessworld, Apr 18, 2018

THE PHILIPPINES can be expected to lead growth across major Asian economies, except India, up to 2019, according to an International Monetary Fund (IMF) report that nevertheless showed the country suffering the worst unemployment in Southeast Asia in the same years.

The multilateral lender sees world output picking up to 3.9% annually for 2018 and 2019 coming from 3.8% last year on the back of “faster-than-potential” expansion among advanced economies.

World output appears to be more upbeat given strong momentum, favorable market sentiment, as well as “accommodative” financial conditions, which is boosted by expansionary fiscal policy in the United States. The partial recovery in crude prices also provides room for growth in oil-exporting countries to gradually improve, the IMF said.

This, in turn, will lift growth prospects for emerging markets like the Philippines.

“The current strong growth of the global economy will help boost growth in emerging market economies,” IMF country representative Yongzheng Yang said in an e-mail response to queries.

“In the case of the Philippines, this means a favorable external environment for its exports, OFW (overseas Filipino workers) remittances, and BPOs (business process outsourcing).”

LEADING SOUTHEAST ASIA
The IMF expects Philippine gross domestic product to expand by another 6.7% this year and 6.8% in 2019, steady from 2017’s 6.7%.

While the forecasts fall short of the 7-8% annual growth goal set by the administration of President Rodrigo R. Duterte up to 2022, when he ends his six-year term, they are better than those of most major Asian economies — excluding India (7.4% this year, picking up to 7.8% in 2019) — the 5.3% and 5.4% averages of the five major Association of Southeast Asian Nations members (ASEAN-5) for the same respective years, 6.5% and 6.6% for “Emerging Asia” (ASEAN-5 plus China and India) as well as 5.6% for both years for the entire Asia.

Mr. Yang said the Philippines “will continue to grow strongly,” supported by solid domestic demand and public investment.

Reforms in the local tax system and a deeper domestic debt market will also attract more private sector investment, including foreign direct investments.

Headline inflation, however, could breach the central bank’s 2-4% target range to register 4.2% this year before easing to 3.8% in 2019.

Continued heavy importation of capital goods will likely drive the current account balance to deficit equivalent to 0.5% of gross domestic product this year and 0.6% in 2019 from 2017’s 0.4%.

Moreover, unemployment will be the worst across much of Asia at 5.5% for this year and 2019, though down from 2017’s 5.7%.

Ensuring that economic growth lifts more Filipinos out of poverty is a primary goal of the current administration, which targets unemployment rate to drop to 4.7-5.3% this year and 4.3-5.3% in 2019 from 5.5% in 2016, as well as poverty incidence to fall to 17.3-19.3% this year from 2015’s 21.6%.

Meanwhile, growth across emerging markets and developing economies is seen to accelerate by 4.9% this year and 5.1% in 2019, coming from a 4.8% climb a year ago.

Advanced economies are projected to grow by 2.5% this year and 2.2% in 2019, from 2.3% in 2017.

IMF’s Mr. Yang flagged tightening moves by central banks abroad as a key risk for the Philippines, as this could trigger investment outflows and higher borrowing costs.

“As advanced economies are expected to grow ‘faster than potential’ in 2018 and 2019, some central banks in these economies have begun and will likely continue to tighten monetary policy which will lead to tighter global financial conditions. This in turn could result in capital outflows from some emerging market economies,” the IMF official said.

“Thus, one of the main risks to the growth outlook for emerging market economies such as the Philippines stem from tighter global financial conditions.”

The US Federal Reserve is expected to hike interest rates further this year after raising them by 25 basis points in the March meeting of its Federal Open Markets Committee.

Other areas of concern include inward-looking policies in some advanced countries, trade tensions among major economies, and geopolitical events.

“However, the Philippines is in a strong position to manage shocks to its economy as it has ample foreign reserves and a low level of public debt,” Mr. Yang added.

Dollar reserves totalled $80.128 billion in March, marking a third straight month of decline though still providing a “very comfortable” buffer, according to the Bangko Sentral ng Pilipinas. The reserves can cover 7.8 months worth of import payments, above the three-month global standard, though lower than the 8.2-month ratio logged in February.

Debts incurred by the Philippine government totalled P6.652 trillion as of end-December to account for 42.1% of the local economy. Economic managers have said this share remains “manageable” and relatively low compared to the ratio for other Asian countries.