How strong is the Philippine economy?

Q: The first quarter report of the Philippine economy was lower than expected. Is this a sign that the economy is not as strong as we think it is? Asked by Joey Agustin via e-mail.

A: While it is true that the first quarter performance of the Philippine economy was lower than what was originally forecasted, the economy did not actually do poorly. The 5.7 percent growth is far from average and our economy still ended up as the third-best performing economy in Asia behind China and Malaysia.  The main reason for the lower than expected economic performance can largely be attributed to the low output of agriculture particularly coconut, fishing and livestock as a result of Typhoon “Haiyan.” Delays of reconstruction also contributed to the slowing of the growth.  Still, the 5.7 percent is still a pretty good showing, way above our 4 percent generational average, and this is despite bottlenecks and disasters. I suppose people would consider 5.7 percent low because of our 6-7 percent performance over a couple of quarters—an issue of perspective.

It is now expected that the performance of the economy in the second quarter will be better than the first. Agriculture and services, led by finance seems to have recovered. Further, the delays of reconstruction are now being solved and it seems that infrastructure, when done properly and timely, will help push the growth higher than the first quarter experience. The bigger concern now to move the economy further is how to fast-track infrastructure development and avoid further delays in implementation.

A quarter of good performance, or a quarter of bad performance does not make or break an economy.

The economy is still expected to hit the 6-7 percent gross domestic product targets for 2014, and that performance will be the envy of many other economies in Asia and the world.  And why is that? Consider these facts:

a) There are nearly 11 million Filipinos overseas and it is expected that remittances in 2014 will be above $24 billion—That’s equivalent to over 8 percent of the economy. By contrast, the country lags in foreign direct investments (FDIs) with only $4 billion—one of the lowest in the Asean region. The remittances we received more than compensate for the lack of FDIs we should be getting.

b) There are about 900,000 Filipinos currently employed in the global business process outsourcing industry, and this industry continues to grow. The business being generated is now about $11 billion already.

c) There are many other factors that we can be confident about. It is estimated that we have about $300 billion worth of mineral reserves in southern Mindanao. The successful peace negotiations with the Moro Islamic Liberation Front should usher in an influx of more foreign investments in that region. In the World Bank’s annual report, the Philippines jumped 25 places up in terms of ease of doing business.

There are many other factors to discuss but what I mentioned is good enough reason to believe that the Philippine economy will continue to perform admirably—that is assuming that we will continue to manage it well and be efficient in the things we do.

The biggest threats to our growth will be the delays in infrastructure development, and lack of sustainable investments in agriculture. Unemployment numbers need to be improved and the bulk of unemployment represents low-skilled workers who have a difficulty transitioning to the services and manufacturing industries. If there are long-term investments in the agriculture sector, we will also see an improvement in our unemployment numbers. Inflation is also on the rise but it is mostly on the supply side, which is heavy on food, so improvements in the agriculture sector will ultimately ease inflationary pressures, theoretically speaking.

Let’s have faith in our economy, but always remember that it is always a prudent idea to be prepared at all times.

Randell Tiongson is a personal-finance trainer, speaker and writer. To read his blogs, visit www.randelltiongson.com   To learn more about financial planning, attend our free personal finance talk on June 19, 7pm PSE Center. To reserve, email [email protected] or text <name><email><RFPinfo> at 0917-3464126