The Philippines is likely to outperform consensus growth forecasts this year with the political and reform environment looking ripe for the implementation of more changes and the world economy appearing to be on the mend, New York-based think tank Global Source said.
But behind the surging confidence, it said there were emerging questions about the sustainability of the economy’s growth as the unresolved crisis in the West meant that the country would have to rely on internal sources of growth.
In a Feb. 10 commentary dated “High on Snake Blood” written by economists Romeo Bernardo and Marie-Christine Tang, Global Source projected Philippine gross domestic product (GDP) growth at 6.1 percent this 2013, upgrading its previous forecast of 5 percent. The upgraded forecast is more optimistic than the 5.6-percent consensus forecast based on FocusEconomics although slower than the actual 6.6-percent expansion last year.
The slightly slower growth seen for this year factored in weak external growth and a strong local currency weighing down exports.
For 2014, Global Source said it expected a growth of 5.8 percent against the 5.7-percent consensus forecast.
“We hinge our higher-than-consensus growth forecast on the domestic macro policy environment continuing to be supportive particularly in terms of higher government spending, further expansions in private investments and election spending aiding consumption growth,” the research said.
“Prevailing policies of easy money in advanced economies will again frame domestic monetary policy this year with the problem of capital inflows compounded by ’risk on’ conditions in global financial markets,” it said.
But Global Source said a number of things could drag growth lower. It said the worst case would involve a sharper fiscal contraction in the United States and a deeper recession in Europe with China unable to pick up the slack due to internal excesses built up over the years. It added that tensions in the Middle East might again flare up, reversing the forecast downtrend in oil prices.
“Internally, remaining bureaucratic bottlenecks may again stall government spending, keeping a lid on investment ratios and souring investor moods,” it said.
But in the best case, it said the world economy would recover much faster and stronger than expected, giving the local economy extra growth drivers through higher export sales and remittance growth.
The key would be investment and whether a combination of business optimism and record low interest rates would accelerate growth, the research said.
“The increasingly upbeat local mood suggests that private players are ready to act. Already, major companies active in the Philippine business scene are observed to be locking in cheap money of fairly long maturities (10 to 15 years) and keenly looking for expansion opportunities,” Global Source said.
The think tank observed that the large firms as well as the major banks were flocking to the government’s public-private partnership (PPP) program, which it said looked “more promising today” with a pipeline of National Economic and Development Authority-approved projects currently undergoing due-diligence from bidders.
The research said similarly, investments in power generating facilities, while ongoing, would need to be accelerated to beef up tight reserve margins, specially in Luzon and Mindanao, to avoid power shortages.
It said local developers and contractors were quite confident that the growth in real estate and associated horizontal and vertical constructions would continue for a while yet as sales, targeted not only at overseas Filipinos but also the expanding business process outsourcing sector (office space) and their employees (residential), remained brisk.
There are, however, many risks that can hold back these investments, the research said, citing for instance the delays expected in most of the PPP projects as target milestones tended to be on the aggressive side.
“Concerns have also been raised about overheating risk in the real estate sector while the peso’s continuing appreciation may sideline plans involving manufacturing,” it said.
“Government itself, upon which an important portion of infrastructure investment depends, has yet to demonstrate its ability to meet spending targets. Also, any missteps that remind players of the political and regulatory risks associated with private investments in infrastructure can set these investment plans back,” it said.