Continued growth likely despite rising concerns

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There has been a marked improvement in the Philippine economy’s performance since 2010 and it would take a major spell of very bad governance to reverse the progress achieved, a London-based research consultancy firm said.

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But Capital Economics, in a research note, also warned that concerns were rising over who would be succeeding President Benigno Aquino 3rd, adding that there was currently “little to go on” with regard to assessing the front-running candidates—themselves saddled with issues.

“With six months to until the election, there is clearly a lot of uncertainty over who will replace Aquino and what kind of president they will turn out to be,” it said, noting that Aquino was expected to leave the country in better shape than it has been in for a long time.

Still, it said the economy’s healthy fundamentals, including low government debt and a current account surplus, mean that a crisis was unlikely even if investor sentiment takes a sudden turn for the worse after the elections.

Near-term growth prospects also look good, Capital Economics said, noting the country’s low inflation rate, steady remittance growth and a healthy fiscal position.

The Philippines was also noted as entering into what is known as a demographic sweet spot, which should see the working age population increase rapidly over the coming years, potentially providing a major boost to growth.

“With its low labor costs, the Philippines could also be one of the big beneficiaries as low-end manufacturing leaves China in search of cheaper locations,” it said.

On the other hand, Capital Economics noted: “If the new president turns out to be another Ferdinand Marcos (whose disastrous presidency from 1965-86 saw the economy lurch from one crisis too another), the Philippines could quickly see its prospects unravel.”

Just as Aquino had quickly improved the Philippines’ image with international investors, “the wrong sort of president could sour it,” it said.

“We have so far been given little to go on when assessing which of the three front runners would make the best president,” it said, referring to former Interior and Local Government Secretary Manuel Roxas, Senator Grace Poe and Vice President Jejomar Binay.

Seen as the continuity candidate, Roxas, although untainted by corruption scandals, was said to have failed to connect with ordinary voters, which appears to be costing him support.

While there are worries over her lack of experience, this doesn’t appear to be holding back Poe in the polls, it added.

Binay, meanwhile, may have plenty of experience but a major corruption scandal has damaged his reputation and cost him support, Capital Economics said.

Provided the worst-case scenario is avoided, the consultancy is hopeful that the improvement in fundamentals would lead to growth averaging around 6 percent over the coming years.

Philippine gross domestic product growth over the past five years has on average been 1.8 percentage points higher than in the previous five years–a bigger improvement than in any other country in the region.

Lauding the current administration, it said the improvement can, in large part, be credited its tough anti-graft stance which has also impressed investors.

To do even better, it suggested that the next president not only consolidate progress made on clamping down on corruption and maintaining political stability but also press ahead in areas where the Aquino administration have so far come up short, notably on improving the country’s infrastructure.

“With the right policies in place, we see no reason why the Philippines should not be able to follow in the footsteps of other countries in the region, which at a similar stage of development were able to grow by around 8 percent-plus for a couple of decades,” it said.

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