GDP growth seen highest under Aquino regime

BUSUANGA—The Philippines is likely to remain in a “sweet spot” and churn out under the Aquino regime a trend growth rate that is much faster than the pace seen during any of the post-Edsa Revolution administrations, according to an economist from Dutch financial giant ING.

Speaking at the Fund Managers Association of the Philippines (FMAP)’s 2014 convention last Friday, ING economist Joey Cuyegkeng warned, however, that the sweet spot could not be sustained for the long haul without inclusive growth.

Cuyegkeng said a high-growth, low-inflation and low-interest rate regime was a new trend for the Philippines.

During the six-year Aquino administration, ING sees the Philippines posting a trend gross domestic product (GDP) growth rate of 6.3 percent, higher than the 4.8-percent average growth rate during the nine-year Arroyo administration and the 2.3-percent growth rate during the short-lived Estrada administration.

The trend growth rate under the Ramos regime was 3.1 percent while that during the term of Corazon Aquino, the late mother of President Aquino, was 3.4 percent.

This year, the economist sees the Philippines sustaining a decent growth of 6.7 percent, although softer than the 7.2 percent in 2013, which benefited from mid-term election spending.

While the service sector has remained a  major engine of the economy, Cuyegkeng sees a sharp pickup in the growth rate of the industrial and manufacturing sectors under this administration. Trend growth rates for these sectors are both seen exceeding 8 percent, or double the pace seen during the previous administration.

The service sector is likewise seen gaining further momentum with a growth rate of 6.7 percent. Over the next three to five years, Cuyegkeng said the amount of revenues from business process outsourcing (BPO) could equal overseas Filipino remittances.

At the same time, he said the fiscal space attained by the government could support the targeted increase in infrastructure spending to 5 percent of GDP.

On inflation, Cuyegkeng sees the inflation rate peaking at 5 percent in the next 12 months before easing toward the government’s target range of 2-4 percent. Inflation is thus seen to average this year at 4.6 percent, higher than last year’s 2.9 percent.

One of the key risks to sustaining the sweet spot, however, is the uncertainty in the power sector. The ING economist said the country would need to start putting up new capacity in power generation to avoid the recurrence of long power outages seen in the early 1990s.

As the productive segment of the population increases, in order to reap the demographic dividend, Cuyegkeng said there should be enough jobs created to absorb the new entrants to the labor force.

A recent Standard Chartered Bank survey also showed that while economic sentiment remained positive, with 80 percent of the respondents expecting the economy to perform at least as well as it did last year (versus 93 percent in 2013), inflation was a worrisome factor.

“Responses are in line with our expectation that inflation will be the biggest risk to the economy in 2014. Most of our clients expect inflation to rise to 4-5 percent in 2014 (59 percent of respondents), with a minority expecting inflation to increase to 3-3.9 percent (33 percent of respondents). Our clients’ expectations are higher than our forecast of 3.9 percent this year. Seven percent of our clients expect the 3-5 percent target to be exceeded. We expect inflation to remain well behaved, barring any event risks from food and energy inflation,” the bank said.