THE PHILIPPINES has been branded as “Asia’s rising star” by Moody’s Analytics, with the country’s growth expected to outstrip much of the world in coming years.
In a report released yesterday, the research arm of credit rater Moody’s Investors Service called the Philippines “among the brightest parts of a generally gloomy global picture.”
While China, the United States and Europe struggled, the Philippine gross domestic product (GDP) grew by a robust 6.6% last year, beating the government’s target of 5-6% and the Moody’s Analytics forecast of 6.5%. This performance is sustainable, it said, with risks low and most sectors solid.
“We expect GDP growth to remain in the 6.5-7% range in 2013 and 2014, making the Philippines one of the world’s fastest-growing economies,” Moody’s Analytics said.
The government’s growth goal for this year and next is 6-7% and 6.5-7.5%, respectively.
Construction should again lead the way, supported by services, especially business process outsourcing, it noted. Government spending should spur demand, although investment and consumption are just as healthy.
This strong growth takes place in an environment of stability. Inflation has dropped well within the central bank’s 3-5% target -- it averaged 3.2% as of March -- allowing interest rates to be kept at record lows of 3.5% and 5.5% for overnight borrowing and lending, respectively.
As a result, the Philippine Stock Exchange index has soared by about 23% to date, closing in on the 33% rise posted in full-year 2012, Moody’s Analytics noted.
“Investors are bullish on the Philippines and so are we.”
Looking ahead, it said, “Some low-hanging policy fruits have already been picked, but if development and reform continue near their current pace, the Philippines’ potential rate for growth will rise towards 8% by 2016.”
The report lauded President Benigno S.C. Aquino III for continuing the work of the Arroyo administration and pushing it further to fight for transparency and accountability.
The commitment to develop infrastructure is also paying dividends, with roads, bridges and public transport extending to distant parts of the archipelago.
However, public investment still accounts for only 2.75% of GDP -- “far too low for a country at this stage of development.” The resulting gap in infrastructure limits growth in manufacturing because of the difficulty of moving physical goods around the country.
Private investment, meanwhile, is a more complicated issue.
The continued inflow of capital from foreign investors fleeing struggling advanced economies is causing money supply in the Philippines to increase sharply.
“Some are fuelling productive activity, but a lot are flowing into asset markets, as suggested by the stability of consumer prices,” Moody’s Analytics said.
A bubble in the stock market would affect relatively few, but one in the real estate market would have a more devastating impact, it warned. “The scant available data on the Philippines’ real estate, alongside anecdotal evidence, suggest that prices and construction may be rising ahead of fundamentals. This bears watching.”
There are also operational risks to private investment, with regulations and taxes “complicated and changeable,” the report read.
“If the government wants to attract more foreign investment, it must ease restrictions on foreign ownership and streamline rules for starting businesses, paying taxes and dealing with workers.”
The Philippines ranked 138th out of 185 countries in the World Bank’s Doing Business survey this year, down two slots from 2012.
