After reporting a 6.8 percent rate of economic growth in 2016, the fastest pace in three years, the government said it expects Philippine industries will remain vibrant in the year ahead with the construction sector being in the limelight as the Duterte administration pursues its commitment to build critical infrastructure projects.
The services sector will also remain strong, supported by moderate inflation, expected influx in inbound tourists, expansion in retail trade, a healthy financial system, sustained growth of remittance, and the continuing growth of the information technology-business process management (IT-BPM) sector, it said.
“Domestic demand has so far remained buoyant, and should continue to provide support to economic growth in the near to medium-term. Improved employment prospects and favorable income conditions will underpin the growth in household consumption,” Socioeconomic Planning Secretary Ernesto Pernia told reporters.
Given a healthy economy in 2016, Pernia said the government’s official target of 6.5 percent to 7.5 percent GDP growth for 2017 is “highly likely.”
In the medium term (5 years), he said growth will strengthen further toward 7 percent to 8 percent, which means the economy will expand by about 50 percent in real terms, and per capita income will rise by more than 40 percent over the next six years.
“This should bring us to the upper middle income category standing by 2022. More importantly, we hope to reduce the poverty incidence to 14 percent by 2022, thereby lifting about 6 million Filipinos out of poverty,” he said.
Pernia, who is also director general of the National Economic and Development Authority (NEDA), said achieving the government’s goal is not without risks, which include adverse weather conditions, the impact of
United States policy shifts and the geopolitical situation.
“For now, our biggest roadblock is extreme weather disturbances, like that of the El Nino,” he said, noting that the country remains vulnerable to very strong typhoons.
With this, he said, there is a strong call to develop the agriculture sector and make it resilient to such shocks.
“We are deeply concerned about the contraction of the crops sector in the fourth quarter following a contraction the previous year. More disturbing is the performance of the fishery subsector, which remained in negative territory for almost seven years now (except only in 2013),” he said.
Reducing the cost of food, especially of rice, is important in alleviating poverty. At the same time, there is a need to raise productivity in the agricultural sector by helping farmers transition to higher value crops and making technology easily accessible, Pernia said.
“Other potential downside risks include possible policy shifts in the US, greater volatility in capital flows, and geopolitical risks. Thus, the government needs to remain vigilant and consider potential repercussions to the Philippine economy,” he added.
The NEDA chief said there is a need to nurture entrepreneurship and attract investments to produce higher-paying, higher quality jobs, especially outside Metro Manila.
In turn, such investment will require a truly secure and stable economic and political environment, he said, noting that this will require that policy statements are consistent and predictable with each branch of government, or at least not logically inconsistent across the three branches of government.
“Moreover, we need to ensure that our sectors are resilient and diversified in both of products and markets. In particular, we need to champion innovation and diversification in the industry sector as it is still heavily dependent on external demand,” he said.
The services sector, he said, needs a policy environment that makes it easier for firms to set up and operate businesses, as well as comply with regulations.
“In this respect, we need to make our regulatory system much more efficient and transparent.”
Seeing the fourth-quarter GDP rate of 6.6 percent reflecting a slowdown from 7 percent in the third quarter, however, private analysts said Philippine economic growth may moderate this year from the 6.8 percent expansion achieved in 2016.
They see government spending easing this year from the 2016 election year.
Four analysts forecast growth in 2017 at between 6.3 percent and 6.9 percent, leading to an average of 6.5 percent. That compares with the government’s official target of 6.5 percent to 7.5 percent.
The most optimistic is ANZ Research economist Eugenia Victorino, expecting GDP growth this year to rise to 6.9 percent in 2017, noting that expansion will be supported by increased fiscal spending.
“However, the renewed push for infrastructure development is likely to keep import growth strong,” she said.
London-based research consultancy firm Capital Economics kept its growth forecast of 6.5 percent for this year but said the downside risks have increased.
Capital Economic’s Gareth Leather said that in the near term, the economy should continue to record solid growth rates as relatively low inflation means the central bank is likely to keep interest rates low over the coming year, which will help support investment.
“Consumption should also do well, helped by buoyant sentiment and healthy household finances (unlike large parts of South East Asia, household debt in the Philippines is very low),” he said.
Meanwhile, Singapore banking giant DBS maintained its 2017 GDP forecast at 6.4 percent with a slight upside bias.
“What’s going to be a key determinant of this year’s GDP growth momentum is investment growth, following a solid 2016. We reckon that it is going to be extremely difficult to match last year’s performance, even if the government continues to be supportive in its fiscal policies,” DBS economist Gundy Cahyadi said.
Lastly, ING Bank Manila senior economist said GDP growth is likely to be slower at 6.3 percent in 2017, pointing out that while public construction would contribute to overall growth, the government’s infrastructure spending growth would moderate.
“Government reported earlier this week that government infrastructure and capital outlay jumped 46 percent year-on-year, with growth in November of almost 50 percent year-on-year. The 2017 program is designed to raise such spending but the highly successful 2016 (growth) would naturally result in a more moderate growth of around 15 percent to 20 percent,” he said.
‘No need to adjust policy rates’
The central bank said the latest GDP results and manageable inflation provide room for the monetary authorities to keep its current policy settings.
“The [GDP] details show that domestic demand continues to be robust. The government thrust on infrastructure spending should provide a solid base for the economy to meet the 2017 growth target. The inflation outlook also remains manageable. Thus there is no real pressing need to deviate from the current stance of monetary policy,” said Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. in a text message to reporters.
Tetangco said the BSP will continue to monitor external developments that may affect growth dynamics and financial markets and “will adjust policy levers as and when necessary.”
Finance Secretary Carlos Dominguez 3rd in a separate statement the country’s GDP expansion of 6.8 percent in 2016 points to a domestic economy in “pretty good shape” and well on its way to sustaining its growth momentum over the medium term. This, he said, was made possible by the Duterte administration’s bold initiatives to keep it on its upward trajectory despite global market volatility.
Dominguez said this gives all the more reason for the Department of Finance (DOF) to aggressively engage in its proposed Comprehensive Tax Reform Program (CTRP)—and the Congress to swiftly act on it—so the Duterte government could raise enough funds for its unparalleled public spending program on infrastructure, human capital and social protection that would keep the Philippines among Asia’s fastest-growing economies in the years ahead.
“This is clear proof that no amount of counterproductive political chatter from certain quarters could undermine the upward trajectory of a domestic economy that is in pretty good shape under a Duterte presidency that is fully committed to sustaining its growth momentum,” Dominguez said.
He said the CTRP, the first phase of which is now under study by the House committee on ways and means, is integral to the new government’s high—and inclusive—growth strategy because “it needs to raise an extra P1.07 trillion till 2022 to close the infrastructure gap that has for long dulled the country’s competitiveness as an investment destination; spend more on education, health and skills training to improve living standards and widen access to high-paying quality jobs; and on social protection to cushion the initial impact of reforms on the poor and other vulnerable sectors.”
Meanwhile, Finance Undersecretary Gil Beltran said while the outlook for the Philippines remains robust, more investments in both physical and social capital have to be mobilized to support and sustain the growth, make growth more inclusive, and eradicate poverty. Poverty rate was brought down from 25.2 percent in 2012 to 21.3 percent in 2015.
Beltran, the DOF’s chief economist, said reforms to support growth include, among others, fiscal reforms in general and tax policy and administrative reforms in particular.
“The proposed tax reform seeks to flatten and make simpler the structure (thereby making tax administration simpler) and broaden the tax base (increasing revenue intake), he said in the DOF’s latest economic bulletin.
“Increased efficiency in domestic resource mobilization will help bankroll inclusive development programs, an avenue for greater economic enfranchisement especially for the underprivileged. Furthermore, strong macro-economic fundamentals have to be maintained to foster stability and enhance investor confidence in the country,” he added.