MANILA, PHILIPPINES - MAY 08:  A general view of the financial district of Makati City on May 8, 2013 in Manila, Philippines. The Philippines is in the throes of a property boom that is unprecedented in Southeast Asia. Hundreds of construction cranes are seen across Manila's skyline as property developments including office buildings, housing projects, hotels and new shopping districts are changing the face of the metropolis. The country's credit rating has been upgraded once again from a grade of BBB- to BBB by rating agency Standard & Poor's and the economy is expected to post a GDP growth rate of 6%, 1% higher than initially forecast.  (Photo by Dondi Tawatao/Getty Images)
The Makati central business district of City in Manila, Philippines. Land prices in the district are set to increase 22 per cent year-on-year in 2020, according to Colliers. Getty Images

Pendulum of economic growth firmly back with Philippines



In past decades the Philippines was regarded by many as a "poster boy" among South East Asian economies.

It was receiving a good deal of foreign business investment then and Manila's stock market was seen as up and coming by foreign fund managers.

But then things changed dramatically.

After the end of the (the president Ferdinand) "Marcos era" in 1986 came a long period of political turbulence and economic stagnation. The country came to be viewed more as a poor, commodity-dependent  economy riven with corruption and "crony capitalism".

The pendulum of fate has since swung back in favour of the Philippines, however, so far as the country's economy is concerned. It is described now as being one of the best performing among the 10 member nations of the Association of South East Asian Nations (Asean).

The Philippines "will be one of the fastest growing economies in the region this year", says Aekapol Chongvilaivan, the country economist in the Philippines office of the Asian Development Bank (ADB). And, he says, the momentum is expected to be maintained.

"This is significantly higher than other the middle income countries in the region, such as Thailand and Malaysia, and it is comparable to the fastest-growing emerging markets like Laos, Vietnam and Cambodia," Mr Chongvilaivan tells The National.

The economy is forecast to grow by 6.5 per cent this year and 6.7 per cent in 2018. The Philippine president Rodrigo Duterte's bloody crackdown on illegal drugs and his pivot toward China and away from the US have created concern overseas but they do not appear to have deflected the economy from its growth path.

Remarkably, at a time when export demand (along with higher commodity prices) has been the main growth driver for many Asian economies, most of the Philippines' growth is coming from expansion of domestic investment and consumption, both public and private.

What lies behind this is a drive by Mr Duterte's administration to end the infrastructure deficit that the Philippines has suffered for decades and which has held back the country's growth. Mr Duterte is putting the government at the forefront of this initiative.

The Philippine leader has forged close links with China, another nation which, according to Jin Liqun, the head of the Beijing-based Asian Infrastructure Investment bank (AIIB) has a strong belief that building infrastructure is an essential precondition for strong economic growth.

Infrastructure is "one of the key drivers of the Philippine economy", says Christopher Wood, the managing director and equity strategist at the Hong Kong-headquartered brokerage and investment group CLSA. The US$7 billion Mega Manila subway project approved in August is one sign of this, he notes.

"The current administration's efforts to push forward infrastructure development matter to the growth prospects of the Philippines," Mr Chongvilaivan says.

"The government is rightly tackling the problem of infrastructure under-investment and underdevelopment as a key factor that has long held back the country’s competitiveness and long-term economic development.

"Since the beginning of the current administration in June 2016, the government has achieved substantial progress in ramping up infrastructure.

"We've seen a remarkable increase in public spending [and] disbursements are on schedule to achieve the infrastructure spending target of 5.3 per cent of GDP."

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Mr Duterte has taken a leaf out of the book of both China's president Xi Jin Ping and the American president Donald Trump in opting for a bold approach to infrastructure development. In the chicken and egg game of which comes first - demand or supply - to boost growth, Mr Duterte has opted for supply.

By fronting up public funds aggressively, including government money, funds from overseas aid and from the ADB and other development banks to building new transport and other infrastructure, he has succeeded in boosting business sentiment generally in the Philippines

Domestic investment from public and private sources rose by $12.3bn in the first half of this year over the same period in 2016, according to the national statistics agency (NSA) - the first double-digit growth in many years. As a result, domestic investment has increasingly become an important driver of growth, with most of it now coming from the private sector.

Indeed, Manila aims to lift growth to as much as 7.5 per cent this year, as Mr Duterte's administration prepares for a six-year, $180bn spending spree on infrastructure.

The big spending plan to repair creaking infrastructure and build new roads, railways and airports form part of an ambitious effort by Mr Duterte to boost growth in the $290bn consumption-reliant economy to around the 8 per cent level.

"We are optimistic that the accelerated state spending and project implementation would keep the Philippines in the club of Asia's fastest-growing economies," the finance secretary Carlos Dominguez said in a statement reported by the Straits Times in August.

Personal consumption, which accounts for around two-thirds of GDP in the Philippines, has meanwhile remained robust, buoyed by improved sentiment flowing from strong investment in infrastructure and manufacturing. Consumption grew by a healthy 5.8 per cent in the first half of 2017, the NSA said.

Much of this consumption expansion is reflected in growth of personal debt in the Philippines, as is the case in many other South East Asian nations at present. In the year to July 2017, total debt expanded by slightly over 12 per cent in the Philippines.

But, according to the MrChongvilaivan, there is little cause for concern on this score. "The banking sector here is well regulated and supervision [matches] international standards," he says."There are no signs of overheating or bubble economy here."

Philippine exports have, meanwhile, been growing this year, "thanks to better-than-expected growth in major trading partners", as the ADB puts it. "However, due to strong imports, the trade balance is still on a slightly deficit side."

Foreign remittances from overseas foreign workers who fan out across the world in search of employment in everything from domestic service to seafaring has remained "pretty stable notwithstandiong problems in the Middle East and in the labour markets of the US and Euopean Union", says Mr Chongvilaivan.

So it seems the Philippines' upward trajectory is likely to continue, at least over the near term, and the government is optimistic of maintaining that path.

"We are well on track to meeting our full-year target growth of 6.5 to 7.5 per cent," according to the economic planning secretary Ernesto Pernia.

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