Economy expanding as it was in 1950s on consumption boom

President Aquino is lifting millions out of poverty and boosting the middle class, even as he struggles to increase government spending.

And companies, like Ayala Corp., are reaping the gains.

The nation’s oldest family-controlled company has more than tripled its capital spending in the past five years to expand its property, banking and infrastructure units and cash in on one of the fastest expansions in Asia. Businesses are counting on structural reforms, a young population and rising remittances to keep their revenue surging, while wrestling with port logjams and delayed project rollouts.

“There are shifts in consumption patterns as the middle class expands, which provide a lot of opportunities for the group,” Ayala chief financial officer Delfin Gonzalez said in an interview in Manila this week, pointing to growing demand for homes, cars and loans. “We’re going full-steam ahead.”

Rising consumer spending, which accounts for about 70 percent of the economy, increases the chance that the growth momentum can be sustained even if investment slows. Gross domestic product (GDP) will rise about 6 percent every year at least through 2019, the International Monetary Fund predicts, the longest such stretch since the 1950s post-war boom, according to data compiled by Bloomberg based on official figures.

The economy expanded 5.3 percent in the three months through September from a year earlier, data showed on Thursday, slower than all estimates in a Bloomberg News survey, and the weakest pace since 2011. The GDP grew 0.4 percent from the previous quarter.

Right places

“Although the data is clearly disappointing, the Philippines is still among the fastest-growing economies in emerging Asia,” Daniel Martin, an analyst at Capital Economics Ltd. in Singapore, said in a note. “Government spending is unlikely to continue pulling down growth, given that public finances are healthy. Meanwhile, falling
inflation and buoyant remittances will support consumer spending.”

Government spending declined 2.6 percent last quarter from a year earlier, while household consumption rose 5.2 percent and services gained 5.4 percent. Industrial output climbed 7.6 percent.

Barclays Plc. on Thursday cut its forecast for GDP growth this year to 6 percent from 6.5 percent, while maintaining its estimate for next year at 6.5 percent.

Growth of 6.8 percent in the fourth quarter is “very doable,” even as the government struggles with spending bottlenecks, Economic Planning Secretary Arsenio M. Balisacan said at a media briefing on Thursday.

More than a third of the country’s population is below the age of 15 years, according to United States Census Bureau data, among the youngest in the Asia-Pacific region. Private consumption grew more than 5 percent in each of the 13 quarters through September, data compiled by Bloomberg show.

Doubling revenue

Remittances, which made up about 10 percent of the economy last year, rose to a record $23 billion in 2013. The central bank forecasts funds from overseas will rise 5.5 percent this year and 5 percent in 2015.

All this bodes well for Ayala, a 180-year-old company that was founded as a distillery by the Spanish nephew of the Archbishop of Manila. Its businesses today include the nation’s top property developer, the No. 2 bank by market value and the second-biggest telecommunications firm.

“A young population and a rapidly growing economy are benefiting companies like Ayala,” said April Lee-Tan, head of research at COL Financial Group Inc. in Manila, which rates the company a buy. “Ayala’s businesses are all in the right places; areas where consumer growth is strong, like real estate, banking.”

Ayala shares have risen about 33 percent this year, compared with a 24-percent gain for the benchmark stock index.

Best shape

Since taking office in 2010, President Aquino has tackled corruption, won investment-grade ratings and boosted business confidence. The presidential election is held in May 2016, and Aquino isn’t allowed to run again.

Private consumption has typically remained strong in the run-up to the vote, even as direct and portfolio investors have been cautious, HSBC Holdings Plc. said in a report this month, based on data going back to the 1980s.

Bloomberg News