For gov’t, economy not a mere one-hit wonder

The Philippines, considered the sick man of Asia not too long ago, recently caught the world’s attention when it became one of the fastest growing economies, exceeding most expectations.

In 2012, the Philippines endured a weak global economy and grew by a surprising 6.8 percent, which exceeded the government’s own target. The feat was followed by an even better 7.8-percent expansion in the first quarter of this year. The Philippines became the fastest growing economy in Asia, beating even China’s growth rate of 7.7 percent.

While the encouraging performance may call for a celebration, some economists prefer not to get too excited over the figures. In their minds, it remains to be seen whether the Philippines’ astonishing growth can be sustained. For them, the economy has yet to prove itself that it is no mere one-hit wonder.

Upbeat government

Sustaining high growth rates is crucial for the Philippines, which continues to have one of the highest incidence of poverty in the region. Economists say the country needs to keep growing by 6 to 7 percent, or even higher, for about a decade so that the benefits of economic expansion may trickle down and effectively reduce poverty.

The government is confident the county can do so. According to the National Economic and Development Authority (Neda), several indicators suggest that the Philippines will continue to post robust growth rates.

According to Arsenio Balisacan, Neda director general, household consumption, which has been a key growth driver of the economy for years, will remain strong because of the rising remittances from overseas Filipino workers.

Balisacan also cited the significant rise of local investments, which now supports consumption. He credited this development to the country’s favorable macroeconomic fundamentals—moderate inflation, manageable government debt, foreign exchange reserves which are more than adequate, and a stable banking system.

“There is reason to believe that high growth rates are sustainable,” Balisacan was quoted as saying.

The government has set its economic growth target for this year at a range of 6 to 7 percent. Next year, it expects growth to range between 6.5 and 7.5 percent. It is also optimistic that the economy can grow by up to 8 percent in the years ahead.

Amando Tetangco Jr., governor of the Bangko Sentral ng Pilipinas, also believes growth may range from 6 to 7 percent.

Tetangco backed up his statement by citing rising local investments, which he said boosted the economy’s production capacity.

“Growth of 4 to 5 percent is history. We are now on a higher growth trajectory,” Tetangco earlier told reporters.

With the economy’s higher capacity to produce goods and services, an increase in demand would not necessarily cause inflation to accelerate. And as the rate of rise in consumer prices stays moderate, households are enticed to spend and businesses to invest more, the BSP chief said.

Restrained optimism

But some institutions think that a growth rate of at least 6 percent may not be sustained. They believe the country’s growth performance last year and in the first quarter of this year was due to base effects, with the relatively small gross domestic product (GDP) in the past years providing the stepping stones for a robust rate of expansion.

Goldman Sachs sees the economy slipping back to a 5.5-percent growth rate this year—a figure it considered respectable given the lingering weakness of the global economy.

The Asian Development Bank likewise believes the Philippines can keep growing by a decent pace, but adds that more investments in infrastructure will be vital for the country if it hopes to sustain a growth rate of at least 6 percent.

ADB projects the Philippines to grow by 6 percent this year and by 5.9 percent next year.

Public infrastructure spending in the Philippines stood at 2.5 percent of GDP last year, way below the average of 5 percent for Southeast Asia.

Bullish forecasts

However, some institutions are bullish over the economy’s prospects.

In a report, the World Bank said the Philippines would likely grow by 6.2 percent this year and 6.4 percent next year. The development lending institution backed its projections by citing rising government spending and private-sector investments, which complemented robust household consumption.

Another global financial services, Barclays, said the country is poised to grow by 6.2 percent this year and 6.3 percent next year to remain one of the fastest growing economies in Asia.

Barclays believes the country’s favorable fundamentals will continue to boost economic activities within its borders even as growth prospects for the global economy remain uncertain.

Varying forecasts

Given remarkable achievements in strengthening its macroeconomic fundamentals, the Philippines is expected to grow no matter how the global economy fares.

But widely varying forecasts on how the economy will turn out over the short to medium term prove that not everyone is convinced the country can sustain the surprising growth rates recently seen.

Time will tell whether the Philippines can rise to the challenge and stay on the high-growth trajectory.