Happy and prosperous New Year to all!
Our previous two columns talked about structural transformation and sustenance of growth for the coming years. We focus this column on providing a general overview of what will be the shape of economic growth this 2015. Consistent with what other think tanks and research units are forecasting, we see that growth this year will be higher than that of 2014. This is despite our downgraded forecast for 2014 from 5.8 percent to 6 percent. This year, as the other forecasters, we see a relatively more robust economy. But what are the growth drivers and dampeners for 2015?
Drivers for the expenditure side:
After contracting last year, we expect government spending to increase this year. With the new P2.606-trillion budget signed into law by the President last December 23, the condition for renewed spending is set. The executive, by now, should have adjusted their processes after the Supreme Court’s decision on Priority Development Assistance Program and Disbursement Acceleration Program to be able to accelerate expenditures this year, especially in infrastructure. Because 2016 will be an election year, where there will be constraints and prohibitions that may affect government spending, expenditures may be ramped up. It will also be expected that, in the second half, election spending will already commence among candidates and current officials, who will run in 2016 at the national and local levels.
Remittance growth in 2014 may have surpassed the target of 5 percent, according to the Bangko
Sentral ng Pilipinas (BSP). This will, most likely, be sustained this year as we see a continuous outflow of overseas workers, albeit on the lower skilled side. Together with inflows for the business-process-outsourcing (BPO) sector (now expected to be close to half of the remittances), remittances will continue to fuel consumption in the country.
We can also expect double-digit export growth this year, mostly because of the US recovery and increased global demand. Investments are also seen to expand, especially in manufacturing, as domestic demand continues to rise due to a rising middle class. The preparations for the full implementation of Asean 2015 also set the stage for expansion of exports in the second half.
Drivers on the production side:
ON the production side, we see continuous growth of the manufacturing sector and this will be further enhanced by the continuing reduction in fuel and, subsequently, energy costs. Services will also continue to grow as the BPO sector maintains its expansion. The telecommunication and financial sectors will continue to thrive, due to the burgeoning middle-class market. The housing sector, especially those targeting the low end of the market, will experience a possible advance this year.
Dampeners on the expenditure side:
There will be some investment uncertainty as the private sector and foreign capital are not sure whether governance and economic reforms will be sustained during the next administration. So far, there is only one candidate, who has declared his intention to run—Vice President Jejomar Binay. Other contenders, like Interior and Local Government Secretary Mar Roxas and Senator Grace Poe-Llamanzares have continued to keep silent on their plan to run for the presidency.
Because of the recession in Japan and Europe, the growth of exports may not reach its full potential, as both are major trading partners of the Philippines. Some components of the electronics-led exports may also be affected as they come from East Asia, particularly Japan. Hence, imports may also weaken. Likewise, a continuing challenge is port congestion, which is largely a coordination and infrastructure issue. It remains a potential dampener to private consumption and a threat to an otherwise benign and falling inflation.
Dampeners on the production side:
WE see a continued slide of agriculture because of the ineffectiveness of the Department of Agriculture and local governments to implement designed programs for the farmers. As a natural outcome of the changing climate pattern, the agricultural sector also continues to be exposed to potential natural disasters, further exacerbating its weak growth. Because of the perennial extension of the agrarian-reform program, investors will continue to keep off the sector. A similar case is happening in the mining sector, where the legal environment continues to be hazy. The real-estate and housing market for the relatively wealthy may have already peaked and stifle the growth of the other services sector.
These are just some of the drivers and dampeners that, we think, will affect overall growth. Overall, we still see that the drivers outweigh the dampeners and, thus, predict a more robust growth of the economy at 6.5 percent to 7 percent this year. Details of this forecast, including the peso-dollar rate, interest rates, inflation and financial markets, will be covered during our public briefing scheduled on January 22. We will, likewise, provide basic information on the economic directions of potential candidates to give us a broad view of policies after the
current administration.
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Alvin P. Ang and Fernando T. Aldaba are professors of economics and Senior Fellow of Eagle Watch, Ateneo de Manila University’s macroeconomic forecasting unit. The next Eagle Watch Briefing: Philippine Economic Outlook 2015, with Dr. Luis Dumlao, Dr. Alvin Ang and Dr. Cielito Habito, is on January 22, from 8:30 a.m. to 12 p.m. at the Justitia Room, Ateneo Rockwell campus. For reservations and to avail yourself of early-bird rates, call 2633221, 0916-3532110 (Melani Salbo) or e-mail: info@ifpmphilippines.org.