A respected group of accountants in the United Kingdom considers the Philippines the brightest spark in the “glowing” Association of Southeast Asian Nations (Asean) region, citing its potential to grow 5.1 percent this year.
The projection of the Institute of Chartered Accountants in England and Wales (ICAEW) is
lower than the country’s 6.6 percent overall growth in 2012 and the government’s growth target of 6 percent to 7 percent this year.
In the latest issue of the Economic Insight: South East Asia report, ICAEW said the Philippines will ride on strong exports and booming household expenditure. The group also projected a 5.4 percent expansion in 2014.
“The Philippines looks to be doing exceptionally well as the government spends heavily on infrastructure and confidence about governance and business prospects abounds,” the ICAEW report said.
The group however warned that these developments could boost inflation.
“Eventually, capacity constraints are likely to catch up with the success story, leading to higher inflation, tighter monetary policy and a fall in growth to about 4.5 percent in 2015,” it said.
With such good growth potential, the country could shake off its former reputation as the “sick man of Asia,” said Charles Davis, ICAEW economic advisor and head of macroeconomics of the Center for Economics and Business Research Ltd.’s (Cebr).
The report makes a quarterly review of South East Asian economies, with a focus on the five largest countries—Indonesia, Malaysia, the Philippines, Singapore and Thailand.
For the Asean region, the report warned that current rises in stock prices may be unsustainable.
“Stagnation in industrialized nations means investors are turning to emerging economies in search of higher yield,” Davis said.
He noted that Asean stock markets have ridden this wave of capital, sending stock prices skywards.
“However, the growth rates in equity prices we are seeing in some countries—20 percent in Indonesia and 34 percent in the Philippines—are not sustainable, and could hint towards an emerging bubble,” he said.
It also found that the ratio of debt-to-income had been dropping until 2010, but a positive
outlook has prompted the private sector to raise its debt exposure, which now stands at 120 percent to 130 percent for Singapore, Thailand and Malaysia.
Mark Billington, regional director for ICAEW South East Asia, sees debt levels in the region stay manageable as long as the projected positive growth story remains.
“For the moment, debt levels are around half of what they were at the peak of the Asian crisis. This is fine for now but would be a cause of concern if credit growth continues to outpace nominal GDP growth at the same rates we see today,” he said.
“Growth outlook for both Philippines and Asean as a whole remains healthy. However, careful judgment will be needed to ensure that credit growth and capital inflows are used to lay the foundation for future prosperity and not fuel a bubble,” he said.