PH seen to sustain decent growth post P-Noy
WHOEVER takes over the presidency from President Aquino will be lucky to inherit an economy seen sustaining “decent” growth in the near-term on the back of strong fundamentals, according to global economic research firm Capital Economics.
“The Philippines has a poor track record when it comes to electing competent leaders who have the country’s best interests at heart. And with none of the frontrunners ahead of May’s presidential elections inspiring much confidence, there is understandable concern in the Philippines that much of the good work of the current president, Benigno Aquino, could be undone,” Capital Economics said in its latest Emerging Asia Economics Weekly report titled “Elections in 2016—what they mean for Asia.”
Capital Economics warned “if the new president turns out to be another Ferdinand Marcos (whose disastrous presidency from 1965-1986 saw the economy lurch from one crisis to another), the Philippines could quickly see its prospects unravel.”
“But provided this worst-case scenario is avoided, we are hopeful that growth will still average around 6 percent over the coming year,” it said. The government targets a higher 7 to 8 percent growth in 2016.
Overall, “the upshot is that even if Aquino’s successor does not have the same commitment to reform, the Philippines still looks set for a period of decent growth,” Capital Economics said.
“For starters, Aquino will leave the country in better shape than it has been in for a long time. The economy’s healthy fundamentals (government debt is low, while the current account is in surplus) mean that even if investor sentiment did take a sudden turn for the worse after the election, a crisis is very unlikely,” Capital Economics said. Latest Department of Finance data showed the share of debt to the economy slid to 45.4 percent at end-November last year from 46.5 percent a year ago.
Also, “near-term growth prospects will be supported by low inflation, which will allow the central bank to keep monetary policy supportive,” Capital Economics added. The Bangko Sentral ng Pilipinas expects inflation to settle between 2 to 4 percent this year, following a below-target, almost three decade-low full-year rate of 1.4 percent posted in 2015.
Amid rising revenue collections, Capital Economics pointed out that “a healthy fiscal position means there is scope for the government to boost growth by increasing spending.”
Latest Treasury data showed that revenues as of November last year jumped by 12 percent year-on-year to P1.945 trillion, although 7-percent below the target. Expenditures on public goods and services during the first 11 months of 2015, meanwhile, rose at a faster 13 percent to P1.992 trillion, but 15 percent lower than programmed as slow spending persisted.
The country’s demographics would also support labor base expansion to serve more foreign direct investments, especially in manufacturing, it said.
“The Philippines is entering into what is known as a demographic sweet spot, which should see the size of the working age population increase rapidly over the coming years, potentially providing a major boost to growth. With its low labor costs, the Philippines is well-placed to benefit from rising costs in China, which is causing some manufacturers to look for alternative locations for their factories,” it said.