PH is ‘Asia’s rising star’!

Written by JIMMY CALAPATI/ April 25, 2013/ http://www.malaya.com.ph/index.php/business/business-news/29552-ph-is-asias-rising-star
One of the world’s fastest growing economies.
That is how Moody’s Analytics, a division of Moody’s Corp. engaged in economics research and analysis, describes the Philippines in its new report that, among others, forecasts sustained growth for country over the next three years.
Nevertheless, the report also said  “more needs to be done,” particularly in public investments and infrastructure.
“The Philippines’ economy grew at potential in 2012 and is set for a strong 2013.  We expect GDP growth to remain in the 6.5 percent to 7 percent range in 2013 and 2014, making the Philippines one of the world’s fastest-growing economies,” Glenn Levine, senior economist at Moody’s Analytics, said in the latest report titled “Philippines Outlook: Asia’s Rising Star”.
The forecast is at the higher end of the Philippine government’s target of between 6 and 7 percent for this year.
It also sits well with the 2014 target of between 7 and 8 percent.
Last year, GDP grew by 6.6 percent, almost twice bigger than 2011’s 3.9 percent but slightly lower than 2010’s 7.3 percent, a 30-year high.
Levine cited the current rate of GDP growth is sustainable as all major sectors of the economy are growing strongly and that inflation is low.
Levine even added that “reform and favorable policy could lift potential GDP growth to 8 percent in the coming years.”
The Philippines has been among the brightest parts of a generally gloomy global picture. Even with China’s economy slowing, the US struggling to gain traction, and Europe stuck in a long-running crisis, the Philippines economy has continued to drive forward, registering 6.6 percent GDP growth in 2012. 
The stock market has surged 23 percent this year after a 33 percent rise in 2012. “Investors are bullish on the Philippines, and so are we,” Levine said, adding that the country’s “impressive rate of GDP growth looks sustainable, as risks are low and most sectors of the economy are growing solidly.”

Growth

Levine said the growth this year will be led by construction and business process outsourcing, which account for a sizable chunk of the Philippines’ exports as less competitive industries such as electronics have receded. 
On the demand side, Levine said government spending was strong in 2012, although this accounted for less than 10 percent of GDP and that all of the other demand components recorded robust growth.
Levine also noted that strong growth has taken place in an environment of falling domestic risk and low inflation.  Inflation has stabilized near 3 percent per year, comfortably at the lower end of the Bangko Sentral’s targeted 3 percent to 5 percent range, allowing the overnight interest rate to be cut to 3.5 percent. 
“This all suggests that the current rate of growth is sustainable,” Levine said.
But the main reason for the growth, according to Levine, is good governance.
“The Philippines’ recent performance against a weak global backdrop shows that good governance is far and away the most important driver of growth in emerging markets, the Moody’s economist said.
“For years, the Philippines was Asia’s perennial underachiever, posting annual GDP growth around 2 percent to 3 percent while the rest of the region surged ahead. But that has changed in recent years, particularly with the government of President Benigno Aquino, who continued the good work of his predecessor, Gloria Arroyo, but went much further in several important respects,” he added.
Levin further noted that the government’s 2011-2016 development plan provides a five-year blueprint for growth and development, providing transparency, predictability and accountability. 

Corruption 

“The crackdown on corruption and encouragement of local and foreign investment, in particular, have worked well. A commitment to infrastructure spending is beginning to pay dividends, albeit from a low base. Across the country, from rail and public transport projects in major cities to paved roads in distant parts of the archipelago, most Filipinos are seeing a palpable improvement in physical infrastructure,” he said. 
Levine said that the Aquino government’s main achievement has been lowering some of the country’s key risks. 
“Fiscal risk remains contained: The deficit equaled 1.8 percent of GDP in 2012, and the government aims to hold it near 2 percent in future. This will lower the debt-to-GDP ratio, which stands at 42 percent.  Other barometers of macroeconomic risk are also improving. The external account is stable. The current account is in surplus, and most of the country’s debt is denominated in pesos. External debt amounts to less than 35 percent of GDP,” Levine said.
Levine stressed, however, that more needs to be done, citing needed improvements in public investments and infrastructure.
“The difficulty of moving physical goods around the country precludes the growth of manufacturing. Public investment accounts for just 2.75 percent of GDP, far too low for a country at this stage of development,” Levine said.
Also, he said that rising domestic debt and emerging asset bubbles are a mild concern. 
“Quantitative easing in the US, Japan and elsewhere has caused some inflow of funds, complicating domestic monetary policymaking by putting upward pressure on the exchange rate. This, in turn, forces the central bank to either act to keep interest rates low or intervene directly in the currency market. But both strategies are limited, however, and tend to increase domestic liquidity; the Philippines is experiencing this,” Levine said. 
He added that although lending growth has accelerated and domestic money supply is rising at a double-digit pace which means some is fuelling productive activity, but a lot is flowing into asset markets, as suggested by the stability of consumer prices.

Market bubble 

“A stock market bubble would affect relatively few, but the Philippines’ real estate market is a concern, since housing investment is more widespread,” Levine noted.
He said that the scant available data on the Philippines’ real estate, alongside anecdotal evidence, suggest that prices and construction may be rising ahead of fundamentals which “bears watching.”
Still, Levine said that the biggest risk for Philippine investment is operational, stressing that the government’s regulations and taxes are “complicated and changeable.”
This caused the Philippines to rank 138th in the World Bank’s Ease of Doing Business Index, alongside Sierra Leone and below India. 
“If the government wants to attract more foreign investment, it must ease its restrictions on foreign ownership and streamline the rules for starting businesses, paying taxes, and dealing with workers,” Levine noted.
Levine even cited that policymaking would become slightly easier if the numbers on the upcoming elections will favor the Aquino Administration.

8% growth?

Is an 8 percent GDP growth achievable for the Philippines? Levine said the Philippines has the potential and much of it depends on the Aquino administration.
“Technocratic and disciplined governance, with transparent targets and ambitious but achievable long-term goals, coupled with President Aquino’s popularity has set the economy on the right course,” Levine said.
He said that some low-hanging policy fruit has already been picked, but if development and reform continue near their current pace, the Philippines’ potential rate of growth will rise towards 8 percent by 2016. 
But Levine said this is far from assured.
“Much will depend on how smoothly the transition goes when President Aquino steps down in 2016,” he said.
He also cited the country’s demographics could help in achieving higher growth rates in the future.
“More than a third of the Philippines’ population is less than 14 years old, promising a growing workforce in coming years,” Levine said.
He also cited that among the factors that could help propel the country in the future is having an investment grade status.
In what was considered as a surprise move, Fitch Ratings upgraded late last month the Philippine sovereign credit rating to investment grade despite a stable ratings outlook in the first quarter of this year.

Upgraded

Fitch upgraded the Philippines’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘BBB-’ from ‘BB+’. The Long-Term Local-Currency IDR has been upgraded to ‘BBB’ from ‘BBB-’.
Moody’s Investors Service, parent company of Moody’s Analytics, rates the country one notch below investment grade.
Earlier, Moody’s said that that it expects sovereign credit fundamentals in the Philippines and the rest of the Asia-Pacific region to remain resilient to both global headwinds during 2013.
Last year, despite the global financial crisis in 2008 and subsequent downturn in advanced country economic performance, four sovereigns in Asia-Pacific were upgraded by Moody’s —Korea, Indonesia and the Philippines—while Vietnam and Pakistan were downgraded by one notch each.
The Philippines’ rating was upgraded by Moody’s to Ba1 from Ba2 in October 2012, a notch lower from investment grade level, in recognition of improved economic performance and strengthening prospects over the medium-term.
The rating action also recognizes positive developments related to institutional quality and fiscal management, as well as financial system and political stability. The outlook is stable.
In its annual credit report on the Philippines, Moody’s said that recent rating actions on the Philippines have been driven by robust growth, more favorable economic prospects over the medium-term, and the continued improvement of fiscal performance.