BUBBLE ALERT | Philippine economic, stock market gains unsustainable, British accountants say

MANILA – The Philippines’ faster economic growth and the gains in the stock market cannot be sustained, according to the Institute of Chartered Accountants in England and Wales (ICAEW).

“The Philippines looks to be doing exceptionally well as the government spends heavily on infrastructure and confidence about governance and business prospects abounds. Strong exports and booming household expenditure are adding to the positive picture,” ICAEW said a report.

ICAEW forecasts the Philippines’ gross domestic product (GDP) to grow 5.1 percent this year, slower than the government target of 6-7 percent. For next year, growth is projected to rise a little to 5.4 percent.

However, “capacity constraints are likely to catch up with the success story, leading to higher inflation, tighter monetary policy and a fall in growth to about 4.5 percent in 2015,” ICAEW said.

Still, the slower growth projection for 2015 “remains a good figure, and the country looks set to shake off its former reputation as the ‘sick man of Asia,'” said ICAEW economic advisor Charles Davis.

The stock market, which hit record-highs several times this year, reflects “stagnation in industrialized nations” that brought investors who are “in search of higher yield” to emerging economies like the Philippines, Davis said, adding that, “Asean stock markets have ridden this wave of capital, sending stock prices skywards.”

“As well as gaining investment grade public debt ratings over the past year, Indonesia and the Philippines have become stock investors’ darlings, pushing stocks up 19.9 percent in the former and 34.1 percent in the latter in the 12 months to March 2013,” Davis said.

But ICAEW cautioned that the equity market expansion in the two countries are “unsustainable and they may be seen as evidence of a bubble.”

“Growth outlook for both Philippines and Asean as a whole remains healthy. However, careful judgment will be needed to ensure that credit growth and capital inflows are used to lay the foundation for future prosperity and not fuel a bubble,” ICAEW Southeast Asia regional director Mark Billington said.

The ICAEW report reviews five of the biggest Southeast Asian economies, which apart from Indonesia and the Philippines, also includes Malaysia, Singapore and Thailand. –Ben Arnold O. De Vera, InterAksyon.com