Philippines seen as second-largest Asean economy in 10 years

By Luis Leoncio

Economic observers have ramped up their growth estimates on the Philippines after the surprise 7.1-percent gross domestic product (GDP) expansion in the third quarter, the first three months under President Duterte’s term.

In fact, a noted global economist went so far as to predict that if the Philippines maintains its growth momentum, its GDP is projected to rise in nominal US dollar terms from around $300 billion in 2016 to $400 billion by 2019 and $750 billion by 2026 “and that by 2026, the country is projected to become the second-largest economy in the Association of Southeast Asian Nations (Asean) after Indonesia.”

IHS Global Insight Asia-Pacific Chief Economist Rajiv Biswas said the country is projected to double its per-capita gross domestic GDP by 2026.

Biswas said the robust GDP growth of the country, supported by the economic expansion in the past five years, would accelerate growth in per-capita living standards in the coming years.

He said the per-capita GDP of the country at the end of this year is expected to be at around $3,000, from $2,500 in 2010.

In 10 years, the country’s per-capita GDP is forecast to double at $6,400, he said.

“This is expected to unleash very rapid growth in consumer spending by the fast-growing number of middle-class households in the Philippines over the next decade, as well as supporting strong growth in manufacturing output and construction spending,” said Biswas.

“The strong third-quarter GDP number was above market expectations, and signals that the Philippines will record a fifth successive year of rapid GDP growth in 2016,” the IHS economist said.

“The GDP of the Philippines in nominal US-dollar terms is projected to rise from around $300 billion in 2016 to $400 billion by 2019 and $750 billion by 2026. By 2026, the Philippines is projected to become the second-largest economy in Asean after Indonesia,” he noted.

Banking giant Hongkong and Shanghai Banking Corp. (HSBC) increased its 2016 growth forecast for the Philippines to 6.8 percent for the year from its previous 6.5-percent estimate.

The government reported last Thursday a 7.1-percent growth, as measured by GDP, for the third quarter, the highest in Asia for the period cited and highest for the domestic economy since 2013.

It was driven by the robust fixed capital investments and private consumption.

The growth figure was stronger than the previous quarter’s 7-percent rise and 6.2-percent increase a year ago.

The July-to-September figure brought the year-to-date GDP to 7 percent, the upper end of the government’s 6-to 7-percent target this year.

HSBC, in a report, said this turnout “points to the resilience of the Philippines economy in a soft global growth environment,” thus, the revision of its growth forecast for the country this year to 6.8 percent from 6.5 percent earlier.

“Momentum to continue into 2017 on the back of infrastructure spending and resilient remittances,” it said.

It noted that risks to growth “are manageable” despite the election of Republican Party candidate Donald Trump as the next US president.

It said the incoming Trump administration “introduces some risks to growth due to the possibility of protectionist policies, but we believe risks to the Philippines are manageable and more limited than elsewhere.”

The major risk from the incoming US government will be the Philippines’s business process outsourcing (BPO) sector that employs about 1.2 million Filipinos, 70 percent of whom earn from inflows from the US, it said.

The report, however, pointed out that the risks remain “manageable.”

“We think risks are mitigated because there is little direct competition with American workers, and President Rodrigo Duterte appears to have struck a more conciliatory tone concerning future cooperation with the US,” it said.

The report also forecasts the decline of US share in terms of investments to the Philippines, from being on top to just second after China by 2017.

“This should more than offset any reduced investment from the US, but is unlikely to stem the deterioration in the current account, which we expect to halve this year to 1.3 percent of GDP due to the widening goods deficit,” the report added.

The government, nonetheless, remains on guard for possible downside risks to the economy.

Socioeconomic Planning Secretary Rosemarie Edillon said the agriculture and fishery sector remains vulnerable to the possible occurrence of La Niña.

“Despite the uptick in exports, the outlook is clouded by sluggish recovery in Europe and uncertainties in economic policies in the UK (United Kingdom) and US (United States),” she said.

Edillon added that the resurgence of the “Saudization” policy, or the replacement of foreign workers with Saudi nationals, is also perceived as an emerging concern.

“Ultimately, what we should be concerned about is how the growth prospects for this year and beyond would translate to poverty reduction and improvements in the quality of life of Filipinos for the next six years,” she noted.

The services sector, which accounted for 4.1 percent of total GDP in the third quarter, grew slower by 6.9 percent from 7.2 percent during the same period last year.

Growth in manufacturing and construction mainly boosted the industry sector, which rose 8.6 percent from last year’s 6.1 percent. Industry contributed 2.8 percent to total GDP during the period.

After five consecutive quarters of decline, the agriculture sector accelerated 2.9 percent from -0.1 percent during the same period last year.

“For the full year, we are not revising (upward the growth target) anymore. We do the target to inform our budget decisions. We stick to the target but hopefully, we will overshoot the 6 to 7 percent,” Edillon added.

“All things considered, our economy’s strong growth in the third quarter is a very good sign of things to come. Together with a low inflation environment, a sustained strong growth bodes well for continued poverty reduction this year.

“The services sector and the sustained strong fiscal spending will also likely continue to drive growth in the fourth quarter. Robust domestic demand will continue to bolster growth in the near-term,” Edillon said.

For the fourth quarter, the country only needs to attain at least 3.4-percent growth to achieve the low-end target of 6 percent; and 6.9 percent to reach the high-end target of 7 percent.

Edillon said the government so far is maintaining its 6.5-percent to 7.5- percent growth target for 2017.

“We will have to revisit that in the next DBCC (Development Budget Coordinating Committee) meeting. In terms of the risks, there is still uncertainty. On the economic situation of the US, we are hoping that a Trump presidency will actually make the US a great economy,” she added.

Edillon identified the tourism and manufacturing sectors as among the economic drivers next year.

”Hopefully, more of tourism (in 2017) because of the Asean hosting… And we are hoping the (peso) depreciation would actually induce expansion in the existing domestic industries. What we need to do also is to be able to penetrate other markets, expand our markets,” she said.