The Philippine economy will continue to expand despite a very challenging external environment this year but certain issues must be addressed first to ensure continued growth, speakers at The Manila Times 3rd Business Forum on Tuesday said.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr., the International Monetary Fund Philippine Representative Shanaka Jayanath Peiris, World Bank lead economist Rogier Van den Brink and Convergys Philippines Services Corp. Chairman Marife Zamora led the discussions on the 2016 economic outlook as the main speakers.
Tetangco said in his keynote speech the economy will sustain its resilience in 2016 despite a bumpy start to the year.
The central bank does not give forecast growth figures for the year. But the inter-agency Development Budget Coordination Committee (DBCC) early last week announced a revised growth target of between 6.8 percent and 7.8 percent for gross domestic product (GDP) this year, down from 7 to 8 percent originally set for the period.
Opportunities in volatilities
“2016 was off to a bumpy start. While we foresee the same risk factors in 2016 as those in 2015, it may be more difficult to predict how these factors would play out in 2016. Policy makers are being more sensitive to spillovers and spillbacks to their economies. And market sentiment continues to be shifty,” Tetangco said.
Factors spurring the uncertainty, he said, include a slowing Chinese economy, the speed and magnitude of the US Federal Reserve’s planned rate hikes and low global oil prices. Domestically, these involve the prolonged El Niño weather pattern, which has hit the agriculture sector significantly and threatens prices, and the existence of infrastructure gaps.
Nevertheless, he said the Philippines could benefit from volatile external financial markets in the long run but it was important to adopt the right policies to realize gains.
“The low inflation, because of the lower global oil prices, would be one of the advantages. But we need to closely monitor the developments and the potential impact of these developments on us and adopt policies to address the potential impact,” he said.
Tetangco said the Philippines is weathering the volatility because its macroeconomic conditions remained sound.
“Keeping one’s house in order is always a good thing. When the time come that investors will differentiate among different emerging economies, I think we will be in a good position because the macroeconomic conditions in the Philippines continue to be strong. It will be a plus for us,” he said.
Strengthen the investment sector
IMF’s Peiris said while the Philippines could look forward to good economic prospects through 2016 and beyond, poor infrastructure and” “anemic” foreign investment posed challenges to higher economic growth.
He provided a snapshot of the Philippine economy in the context of the current global situation and suggested the country was well-positioned to take advantage of its stability, which is underpinned by a sound banking system, manageable government debt, a young, skilled workforce, and strong consumption.
Challenges posed by a “rebalancing” of the Chinese economy, some global slowing in developed and commodity-exporting economies, and tightening of oil-producing economies in the Middle East would be muted by the Philippines’comparative stability, Peiris said, but in order to maintain growth over the longer term, a number of key issues need to addressed.
He identified infrastructure and attracting investment as the biggest obstacles to stable growth, pointing out that the Philippines lags the region and in fact most of the rest of the world in these key areas.
“The investment leg needs to be improved,” he said.
In addition to opening more areas of the economy to investment, Peiris stressed that improving agricultural production, implementing “comprehensive” tax reform, including raising more revenue for the government, and diversifying access to financing for businesses and households should be priorities for the next administration in order to make the most of the country’s economic gains.
A demographic “sweet spot” remains an edge for the Philippines amid a challenging external environment, Peiris added.
“The demographic dividend has been an important aspect of Philippines competitive advantage,” he said, referring to the Philippines’ young and huge population compared to its regional peers.
“As labor cost in China and even in other parts of Asia is rising, the Philippines can be competitive if it continues to invest in its people especially in health and education,” he said.
‘PH to be envied’
World Bank’s Van der Brink said a lot of the external challenges that the rest of the world was worried about would not affect the Philippines very much.
“A lot of the countries are worried about the slowdown in China. The Philippines’ link with China is not that strong. Your financial market isn’t really linked to the Chinese ones. Even the consumer demand in China is not really very important for the Philippines,” he said.
The World Bank economist also pointed out that the conflict in the Middle East would also not impact the Philippines that much.
“The Philippines has a very diversified portfolio of migrants. So OFW (overseas Filipino worker) remittances, unless a sort of major event happens in the Middle East, the economy will not really be affected that much by it,” he said.
“Overall, the global environment dies not look too good and that will effect Philippines in a way but remember, the country is now growing at 5.8 percent,” van den Brink said.
“Even if that growth goes a bit down, its still in a very high growth environment. The economy will still rack up numbers that will be envied by the rest of the world,”
BPO emerging as growth driver
Convergys’ Zamora, meanwhile, focused on the economic contribution of business process outsourcing (BPO) industry, including its “knock-on” effects on other sectors.
“For every BPO job, there are two and a half indirect jobs created,” she said, ranging from taxi drivers to janitors.
The industry is also boosting demand in the real estate and auto sectors, as well, Zamora said.
From $13.2 billion in revenues, 777,000 workers, a 5.8 percent share of the domestic economy and a 10 percent share of the global industry, BPOs in the Philippines have grown this to $22 billion, 1.2 million jobs, 6.7 percent of the economy and 13 percent of the global share, Zamora said.
Putting the economic contribution in perspective, she said the $13 billion earned in 2012 was equivalent to 3.4 billion Chicken Joy meals, 2 billion Big Mac meals, 180,000 middle-class houses or condominiums, 3.4 billion jeepney rides, 68 million prepaid cards, 68 million Bench jeans, enough taxes to build 2 million classrooms and nutrition program funds for 14 billion days.