CAPITAL ECONOMIES REPORT

‘Economy to grow 6-7%’

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The Philippine economy is poised to grow between 6 percent and 7 percent over the medium to long term even with the impending change in political leadership, international research and analytics firm Capital Economics said.

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Capital Economics said in its latest report on the Philippines that much is at stake as the Philippines prepares to go to the polls on May 9.

“The current president, Benigno Aquino [3rd], who is forbidden from standing again, deserves much of the credit for turning the country’s fortunes around since his election in 2010. But there are good reasons to think that his achievements will outlast his presidency,” it stated.

The think tank said it remains optimistic that the Philippines will continue to grow strongly over the coming years.

Capital Economics pointed out that sound economic policies and improved governance of public institutions have allowed the Philippines to build strong macroeconomic fundamentals over the years of the Aquino Administration.

It said these fundamentals, such as a manageable debt burden and current account surplus, would help to ensure the Philippines avoids crisis situations arising from global economic challenges.

“Low levels of government debt and a current account surplus mean that, even if investor sentiments do take a sudden turn for the worse after the election, a crisis is unlikely,” it added.

The Philippines posted a current account surplus of $8.4 billion in 2015 to mark its 13th consecutive years in surplus. The general government debt as a percent of gross domestic product settled at 36.8 percent as of September 2015 compared with 59.2 percent as of end-2005.

The think tank also recognized efforts to boost the manufacturing sector, which economists say has bigger multiplier effects on growth compared with the services sector, because it is more capital intensive and requires a bigger supply chain.

In 2015, the manufacturing sector grew by 5.7 percent, spurred by rising investments on the back of improved business confidence and manageable inflation. The sector grew by an average of 7.6 percent in 2010 to 2015, significantly faster than the average of 3.2 percent in 2000 to 2009.

Capital Economics also cited the young population of the Philippines as another factor that will help keep the economy on a robust growth trajectory. The average age of Filipinos is currently estimated at 23.5 years.

The Philippines is said to have recently entered the “demographic window,” a period when a majority of the population belongs to the working-age group and in which economic production is likely to accelerate with sufficient investments in human capital development.

“To do even better than this, though, the next president will not only need to consolidate the progress Aquino has made on clamping down on corruption and maintaining political stability, but also to press ahead in areas where Aquino has so far come up short, notably on improving the country’s infrastructure,” it said.

The quality of infrastructure in the Philippines is among the worst in the region, and remains a deterrent to some investors, it said.

“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 8 percent-plus for a couple of decades,” Capital Economics said.

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