7-8% growth this year onward seen ‘doable’

THE PHILIPPINE ECONOMY could expand by at least 7% this year on the back of a sustained investment surge and steady domestic consumption, analysts said at a First Metro Investment Corp. (FMIC) briefing yesterday, citing global events as the biggest risk while downplaying the impact of local political developments.

Victor A. Abola, economics professor at FMIC partner University of Asia & the Pacific, expects gross domestic product (GDP) growth at 7-7.5% in 2017, higher than the 7.0% expansion he had projected for 2016.

“Growth will still be domestic demand- driven, but clearly investment-led. There’s a bonus from a better global economy,” Mr. Abola said during the FMIC’s annual economic and capital markets briefing yesterday.

“A 7-8% [ growth] with low inflation will be doable for 2017 and beyond.”

If realized, this rate would fall within the midpoint of the government’s 6.5-7.5% growth target for the year, cementing the country’s position as among the fastest- growing economies in Asia.

Economic growth averaged 7% during the nine months to September last year, propped up by an investment surge and buoyed by a sustained strength in private consumption against the backdrop of low inflation that has averaged 1.8% for the full year.

The government’s infrastructure push is also expected to provide some lift to overall growth, with the Duterte administration “moving fast” on this matter compared to the Aquino administration.

Actual infrastructure spending this year is expected to account for 5-5.5% of GDP, Mr. Abola said. This year’s P3.35-trillion national budget programs spending on public infrastructure to increase 13.79% to P860.7 billion equivalent to 5.4% of GDP from P756.4 billion, or 5.1% of GDP, in 2016. The current administration is looking to increase spending on infrastructure to an equivalent of 7.1% of GDP by 2022 — the year its term ends — from a programmed 4.3% of GDP in 2015 and from 1.8% in 2010, according to the December issue of EconomyPH of the government’s Investor Relations Office.

Bank economists have said that higher growth projections for the Philippines were made on the premise that the aggressive state spending announced by President Rodrigo R. Duterte will be implemented quickly, improving the ease of doing business in the country.

Mr. Abola also said the prevailing 21.6% poverty rate is expected to drop further, given that job creation proved to be “very strong” last year.

Household spending should remain robust on the back of sustained remittance flows that could grow by up to four percent.

UA&P economist Bernardo M. Villegas added that the biggest threats ahead stem from external developments rather than local issues, flagging a possible recession in the United States, Japan’s “perpetual” economic stagnation and the looming exit of the United Kingdom from the European Union, among others.

“No matter how much political noise we get from our own President (Duterte), I look at him with certainty. Whatever he says that is preposterous, he does not implement,” Mr. Villegas said in discussing his bullish outlook for the Philippine economy.

Several economists have warned that Mr. Duterte’s tough talk and “erratic” comments against allies in the West and international organizations like the United Nations could turn off foreign investors, which in turn could stem the entry of muchneeded capital and potentially stunt long- term growth prospects.

Mr. Villegas even went as far as describing ties between the Philippines and the US as “very positive,” noting that Messrs. Duterte and Trump appear to be “very alike.”

Mr. Villegas pointed to the country’s young population, strong consumer market, growing business process outsourcing sales, domestic tourism, as well as the recovery of the agriculture and manufacturing sectors as promising growth drivers.

Reforms to ease foreign ownership restrictions could also attract more investments and spur further expansion.

The Philippines’ solid macroeconomic footing should also lend resilience to local financial markets despite headwinds.

“I think market sentiment has to catch up with the fundamentals… We continue to believe that the fundamentals are going to propel the PSEi (Philippine Stock Exchange index) valuation,” said FMIC head of research Cristina S. Ulang.

Ms. Ulang expects the bellwether PSEi to recover to 7,500 level this year with corporate earnings up by 8%, riding on the strong GDP print and increased spending by both government and the consumer market. The PSEi sustained a rally on Thursday as it gained 2.54% to hit the 7,209.44 level.

The peso is expected to trade P50- 51 against the dollar and could go beyond the P48-50 range projected by the government.