Consensus emerges on growth drivers


Forecasts on Philippine economic growth this year appear to have a consensus on the main driving factors: increased government spending, especially on infrastructure; lower oil prices and higher remittances that are seen boosting private consumption.

The latest predictions, coming from global investment banks Barclays of the UK and DBS of Singapore, agree that lower oil prices, infrastructure development, government spending, and increased manufacturing output will drive growth past the 6 percent level in 2015.

Last week Standard Chartered Bank said the Philippines will remain as Asia’s bright spot in the face of global uncertainty, citing private consumption and more infrastructure development projects likely creating upside to GDP growth.
The Asian Development Bank (ADB), meanwhile, has urged the government to not just rely on sustained private consumption and remittances but to increase spending on infrastructure to attract further investment.

Growth forecasts
For Barclays, such factors provide a basis for its forecast of 6.5 percent growth in GDP for 2015. In its latest “Emerging Markets Quarterly” report, the bank sees lower oil prices, stable growth in Filipino overseas workers’ remittances and completion of many infrastructure projects spurring economic activity and raising production output.

DBS maintains its 6.3 percent GDP growth projection, with support provided mainly by the manufacturing sector.

Barclay’s forecast also tops the 6 percent prediction given on Friday by Standard Chartered Bank for 2015 and even the more optimistic 6.4 percent expected by the ADB for this year.

The government itself has projected growth in the range of 7 percent to 8 percent for the whole year, after GDP expanded 6.1 percent in 2014.

Support to external balance, consumption
Barclays said the impact of lower oil prices will continue to support external balances and household consumption in the Philippines.

“The pass-through of lower oil prices into retail pump prices has been improving, and this should give a positive shock to disposable incomes,” it said.

It expects growth in overseas Filipino workers remittances to be stable at about 6 percent.

“We expect private consumption growth to improve in 2015 relative to 2014, and this pre-empts any election-related spending, which should have a larger impact in 2016,” it added.

Easing infra bottlenecks
Barclays said infrastructure bottlenecks in the Philippines seem to be easing.

It pointed out that a large number of projects undertaken by the Aquino Administration in the early years of its tenure are approaching completion.

“Completion of projects is likely to boost productivity and domestic activity,” it said.

The bank mentioned that the Manila port, which has been undergoing renovation, has been decongested and is starting to show an improvement in efficiency.

“Similarly, highway projects in Manila and surrounding areas have been completed or are close to completion,” it said.

Govt spending to normalize
Lastly, Barclays noted that government spending is soon expected to normalize.

“Last year, subdued fiscal spending was a drag on growth. The government’s considerable efforts to increase outlays ahead of the 2016 election appear to be bearing fruit,” it said.

After the government addressed concerns over the controversy surrounding the 2011 infrastructure spending acceleration program, it is now expected to facilitate the completion of projects undertaken during its term.

The bank also expects more progress to be made in issuing fiscal outlays for rehabilitation of areas affected by Typhoon Haiyan, which it said could provide further support to construction activity in the country.

Even with higher spending in 2015, the bank said underlying fiscal position remains comfortable and leaves ample policy space.

Strong manufacturing
DBS sees the contribution of the manufacturing sector to growth as vital.

“Strong growth in the manufacturing sector over the past couple of years has somewhat eased concerns that the economy may overheat,” the bank said in a research note.

DBS explained that growth in manufacturing indicates that the economy is no longer overly dependent on the services sector.

Also, the bank noted that the continued efforts to improve infrastructure in the country are likely to mean bigger production capacity in the medium-term, maintaining support to overall GDP growth.

Last week, Standard Chartered Bank said the Philippine economy is well anchored to sustain its growth at 6 percent in 2015.

StanChart economist Jeff Ng expects better external demand boosting the local manufacturing sector, particularly export-oriented industries, although he sees stronger export growth momentum manifesting only in the second half of the year.

The Manila-based ADB also sees strong GDP growth for the country in 2015 at 6.4 percent based on buoyant private consumption, a solid outlook for investment and exports, and a recovery in government expenditure.

In its “Asian Development Outlook 2015,” ADB said the factors that powered private consumption in 2014—growth in employment, modest inflation, and higher inflows of remittances—are projected to continue through the forecast period.

ADB added that fiscal policy is expected to become more expansionary, as it noted that the national budget boosts allocations for social services and infrastructure and directs additional support for the development of agriculture, tourism, and manufacturing.


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