As Philippines posts some of the fastest growth rates in the world, it is finally catching up with its fellow Asian tiger economies after years spent languishing behind its neighbors.
The Philippines is mimicking gains seen in Malaysia and Thailand in the 1990s as they industrialized with the World Bank forecasting expansion of more than 6 percent for eight years until 2019 — unparalleled in the nation’s history. Data released recently shows that clocking a faster growth rate than China, growth in the Philippines was 6.8 percent in 2016.
Newcomers like the Philippines and Vietnam, whose younger populations and rising middle classes help lure manufacturers, are being given way by the region’s former powerhouses. Philippine President Rodrigo Duterte’s ambitious $160 billion infrastructure plan and push for greater investment from China, Russia and the Middle East are strengthening the outlook even as he has alienated some with his anti-U.S. rhetoric and deadly drug war.
“We are seeing a transformation to a stronger, more developed economy,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “Recent administrations worked hard to ensure macroeconomic stability which serves as its anchor.”
In 1960, the Philippine economy was 10 times bigger than Singapore’s and more than twice the size of Malaysia’s and is now about $292 billion. While its peers expanded rapidly, a steady decline since then got it the label “the sick man of Asia”. When the former President Benigno Aquino starred a crusade against corruption and won the country’s first-ever investment grade credit ratings, the nation’s resurgence started in 2010.
The Asian Development Bank forecasts that joining the likes of China, Malaysia and Thailand, the Philippines can achieve upper middle income country status with per capita income of at least $4,126 by the end of this decade.
Financial markets have been mixed even with the strong growth outlook. The peso is among the worst performing Asian currencies in the past six months and stocks have faltered while the government last week sold $2 billion of global bonds at the tightest spread ever.
Boosting manufacturing is key to creating more jobs, the ADB has said. Depending rather on a youthful and growing consumer base, the Philippines is among the least reliant on exports in the region. There was a rise of more than 6 percent for an eighth quarter in household spending, which makes up about 70 percent of gross domestic product.
“The economic takeoffs of countries like Thailand and Malaysia were built on their manufacturing prowess and this is where the government must redouble their efforts,” Neumann said. “This is a tough nut to crack. It will require infrastructure improvements and attracting more foreign direct investment to turn that into a reality.”
While still being pales in comparison to Thailand’s $9 billion and Malaysia’s $11 billion, FDI to the Philippines surged more than five times to $5.8 billion between 2010 and 2015.
From the previous administration’s goal of 5 percent, Duterte is planning to boost infrastructure spending to 7 percent of GDP to compete. To boost revenue and amend the Constitution to shift to federalism, he is also pushing for changes to tax laws.
“If they manage to push through tax reforms and boost infrastructure spending, manufacturing will now become its next leg of growth, adding to remittances and outsourcing,” said Michael Wan, an economist at Credit Suisse Group AG in Singapore. “This will boost the growth potential to at least 7 percent in the years ahead.”
(Adapted from Bloomberg)
Categories: Economy & Finance