The Philippine economy, as measured by the gross domestic product, is expected to grow by just 6.2 percent this year as the sustainability of expanding domestic output remains uncertain, according to the Philippine Institute for Development Studies.
The state-run think tank expects growth in 2013 to be slower than in the previous year, near the lower end of government economic managers’ projected range of 6 to 7 percent.
PIDS, in an article penned by senior research fellow Adoracion M. Navarro and president Josef T. Yap, said economic indicators—particularly the ratio of investments to the size of the domestic economy—should be monitored.
It added that the rebounding expenditures in public construction and the strong consumption expenses would remain the major factors for growth, especially since both were expected to receive a boost from election-related spending.
“Domestic sources of growth will be important because global economic conditions remain fragile,” according to PIDS.
“The only bright spot will be the faster economic growth in China but its benefits to the Philippines will be constrained by the dispute arising from competing territorial claims of the two countries,” it added.
Further, the think tank said growth might continue to bank on important laws and a relatively benign political situation.
“The momentum created by favorable political and legislative outcomes must somehow be sustained,” PIDS said.
“The obsession of economic managers with favorable credit ratings must be tempered and, instead, focus has to shift to the mediocre investment rate.”
In this light, PIDS is working with the Department of Trade and Industry in formulating a Comprehensive Industrial Strategy for the country.
PIDS urged the government to focus and bank on small and medium enterprises for the revival of the manufacturing sector since these businesses create more jobs than large firms do.
PIDS also recommends that, in the medium term, the government should work toward the significant diversification in the country’s production.
Last month, Barclays Bank raised its 2013 growth forecast for the Philippines to 5.9 percent from 5.6 percent.
Barclays said the upward adjustment of its forecast was based “on the expectation of an election-related boost to growth.”
BS Securities is more bullish as it also revised its own growth projection to 6.3 percent from 4.5 percent.
UBS said the Philippines’ beating expectations last year influenced the upward revision for its forecast.
“We had expected weaker exports to pull growth below par in the second semester of 2013 (but), instead, domestic spending has boomed,” it said.