Economy seen growing by 7.5-8% this year

MANILA, Philippines—The Philippine economy is seen to expand by 7.5 to 8 percent this year, driven largely by the expected increase in the government’s infrastructure spending and continued robust consumption, according to the Metrobank-led First Metro Investment Corp. (FMIC).

Also driving this year’s economic growth would be the strong performance of the business process outsourcing (BPO) sector as well as the revival of the local manufacturing industry, FMIC president Roberto Juanchito T. Dispo said during the membership meeting of the Philippine Chamber of Commerce and Industry (PCCI) on Tuesday.

“The Philippines will continue to be attractive due to the country’s strong macroeconomic indicators. There are risks we should be vigilant of such as the high currency and high cost of electricity, among other factors,” Dispo said.

He noted that the government’s move to accelerate infrastructure spending, reportedly 37 percent higher at P404 billion this year, would boost the business environment and improve the country’s  competitiveness. Meanwhile, the expected robust domestic consumption will be driven by rising consumer confidence, increasing tourist arrivals and high remittances from overseas Filipino workers.

The Philippines, according to Dispo, is a nation of consumers with about 70 percent of the country’s gross domestic product (GDP) driven by consumption alone.

The BPO sector is seen to grow this year, with revenues and employment generation seen to reach $18.14 billion and a million, respectively, this year, while a manufacturing revival, aided by infrastructure, lower wages and abundance of English-proficient skilled workers is expected. The local manufacturing sector is seen to continue expanding faster annually, driven by the food business, chemicals, furniture and fixtures, among others.

Dispo, however, warned against the risks that might deter the Philippine economy from expanding further. He identified these risks as the lack of adequate infrastructure and investments in research and development; power supply shortages and high electricity tariffs; high unemployment rate and export of labor, and a strong currency.

“With rapid economic growth and urbanization, the demand for infrastructure grows… [while] investments in research and development is a catalyst for sustainable growth and strengthening of industries. The Philippines is behind the curve in R&D spending,” Dispo said in his presentation.

Looming shortages are seen by 2016, as reported by the Department of Energy, with Luzon needing an additional 8,100 megawatts, 1,700 MW in the Visayas and 1,600 MW in Mindanao. The country also continued to have among the highest power rates—9th in the world, and second highest in Asia next to Japan.

“In terms of youth unemployment, the Philippines ranked very high in that category. It shows that the economy’s absorptive capacity in terms of employment remains very weak despite decent economic growth. The high unemployment rate is a big concern,” Dispo said.

“A strong currency may undermine the country’s strengths and competitiveness. The value of OFW remittances is reduced in peso terms hence reducing the disposable income. A weak currency helps government in debt servicing, shores up government revenues and benefits the BPO sector, depending on the situation. I think the P45 to a dollar is a threshold wherein the BPOs and OFWs will be happy, and the importers, government and oil traders and importers are quite satisfied… The exchange rate ideally should hover at P44 to P45 [to a dollar],” he added.