The lower-than-expected 5.7 percent expansion in gross domestic product (GDP) in the first quarter of 2014 serves as a wake-up call for the country’s leaders to engage in meaningful capital spending on agricultural and manufacturing projects that will sustain the economy for the longer term, private economists said on Friday.
The slowdown in growth has created uncertainty on the real state of the economy—whether it has finally lost its growth momentum or if the slowdown was merely a soft patch, they said.
The potential capacity of the economy remains largely untapped and think tanks urge government and business leaders to take advantage of the available financial resources before the country leaves the so-called “sweet spot” in the global investment market.
In its GDP commentary, the Bank of the Philippine Islands (BPI) said the quarter’s economic growth print came as a negative surprise, falling short of a market consensus of 6.4 percent growth. The sub-6.0 percent figure also follows eight straight quarters of expansion at above 6 percent.
The bank said the disappointing headline number erodes growing expectations for the Philippine economy’s ability to sustain its favorable debt dynamics, even just through 2016.
It noted the significant reduction in debt-service in the public and private sectors from levels in prior years, but very little of the funds had been mobilized for meaningful capital spending on agriculture and manufacturing productivity.
Market participants and rating agencies are now uncertain whether the country has finally lost its growth momentum or if the weaker-than-expected GDP print was merely a soft patch, it said.
“We hope these numbers will be a wake-up call for both government and the private sector about how little our economy has taken advantage of the scope to spend given the very affordable financing available in the local financial sector,” it stated.
Looking ahead, the bank hopes the country will manage to achieve 6.2 percent growth for the full year, much faster than its Asian peers, but lower than the 6.5 percent to 7.5 percent full-year target set by the government.
The assumption for such expectation is that GDP would bounce back for the balance of 2014 with the help of low interest rates in spurring strong household consumption, the government’s efforts to ramp up infrastructure spending, which the bank said, could “offer solace in the short-term and the medium term.”
BPI notes the current slow pace of development in big-ticket items that otherwise could effectively lower the cost of doing business in the country and provide more employment in the agriculture and manufacturing sectors.
“We hope this realization will compel business and government to get their act together and spend more aggressively for the balance of 2014 [and beyond]in order for the Philippines to sustain its growth momentum and start to finally create high quality jobs for our ever-growing population. Otherwise, the chances of staying in the ‘high growth, low inflation sweet spot’ could soon come to an end,” it added.
For outsiders or from global investors’ point of view, the degree of deceleration has not sparked enough cause for concern.
An upbeat assessment came from Global Research of global bank HSBC, which sees optimism riding high in the Philippines, saying the slower-than-expected growth rate in the first quarter is not likely to dampen the mood of investors.
“This has been our view: growth is expected to slow to 5.9 percent in 2014 from 7.2 percent in 2013 but is still above trend, thanks to sticky household consumption in the Philippines,” it said.
Noting sluggish global demand, frequent natural disasters in the country, and limited spending on infrastructure, the pace of the Philippine economy, although slowing, is still “rather impressive,” it said.
Household spending remains solid and a key driver of growth as private consumption has consistently contributed about 4 percentage points per quarter to year-on-year growth in the past two years, the bank said.
“This is thanks to sticky remittance inflows and strong demographic transitions, which fuel demand for key goods such as food and garments. Inventories, however, were a drag on growth in the first quarter 2014 due to output losses,” HSBC added.
In a separate commentary, Rajiv Biswas, chief economist for Asia-Pacific at US-based think tank IHS Inc., said the outlook for the Philippine economy in 2014 to 2015 remains strong. IHS forecasts annual GDP growth of 6.2 percent for 2014 and 6.0 percent growth for the following year.
The think tank sees continued strong growth of domestic consumption, underpinned by buoyant remittance flows; rapid growth in exports; continued rapid expansion in information technology-business process outsourcing exports; as well as infrastructure development, as key growth drivers for the Philippines over the remainder of 2014.
“The long-term outlook for the Philippines economy remains very positive,” with IHS seeing the economy having the capacity for “robust long-term economic growth of about 4.5 percent to 5.0 percent per year over the 2016 to 2030 time horizon,” Biswas added.