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PHL Economy Poised for a Robust Growth

The government and private economists, in general, are one in saying that the Philippine economy is bracing for a vigorous expansion in the next three quarters of the year. I couldn’t agree more.


Our economic managers have kept the macroeconomic fundamentals strong to support growth despite the blip in the inflation rate in the latter part of 2018. Economic data that have trickled in lately show a positive trend and indicate a robust expansion.


Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno, while aware of the external risks on the economy stemming mainly from the US-China trade tensions, is himself optimistic on the growth prospects of the Philippines. Keeping our house in order, he says, remains the first and best line of defense.


Diokno, in a recent speech, said the Philippines was “improving economic openness through liberalization of trade and foreign direct investment” and “enhancing external competitiveness by strengthening domestic industries.”


“We are diversifying products and markets to nontraditional growing economies; and we are sustaining domestic economic resilience by building adequate buffers,” adds the BSP governor.


Diokno believes the Philippines will weather the US-China trade war, given that the economy’s growth is mainly driven by domestic demand. The Central Bank governor drove the point home here. I expect strong household demand in the succeeding quarters to fuel economic growth, now that the uncertainty caused by higher inflation has worn off. President Duterte’s “Build, Build, Build” infrastructure program will continue to create jobs and increase consumer spending in the process.


The Philippines, among the Asean-5 economies, will continue to register one of the strongest expansions in the region. The International Monetary Fund expects growth at 6.6 percent, while the Asian Development Bank and the World Bank both see it at 6.4 percent. Diokno also believes the Philippines will continue to outpace Indonesia, Malaysia and Thailand this year.


Private economists, meanwhile, are equally upbeat on the growth prospects, expecting a strong rebound in the second quarter from a 5.6-percent expansion in the first quarter. Economists from First Metro Investment Corp. and University of Asia and the Pacific agree in a joint report that robust investments, consumer spending after the midterm elections and the benign inflation rate would support stronger expansion in the second quarter.


The first-quarter gross domestic product (GDP) growth might be slightly off target, but the private economists believe the economy will be back on a fast growth path in the second half.


“Investment spending should continue to lead GDP growth, as durable equipment investments have kept a steady growth pace [even prior to the BSP moves], which we expect to accelerate starting the second quarter not only with election spending but also with a higher bounce in infrastructure and another government spending,” the economists said in the report.


The BSP has trimmed the reserve requirements of universal and commercial banks by a total of 2 percentage points, a move that will release about P190 billion in additional peso liquidity into the financial system. The private economists noted that more liquidity would have been injected into the financial system starting in May after the BSP reduced the reserve requirement and the policy rates.


Two key economic figures lately have supported the projected robust economic expansion in the next three quarters of 2019. The Board of Investments reported last week that it approved P290.6 billion worth of investment commitments in the first five months of the year, up 40 percent from P207.5 billion year-on-year.


Foreign investment pledges soared to P67 billion in the five-month period from just P6.9 billion a year ago, while domestic commitments increased to P223.5 billion from P200.5 billion. These figures will foretell the economic activities in the short- and medium-term periods as investors start to build their projects and employ more Filipino workers.


The recent successful trade mission to Japan led by President Duterte and his economic managers has boosted the investment climate after the Philippine government attracted nearly P300 billion in trade deals, business expansion and letter of intents from Japanese companies. The deals are expected to create over 80,000 jobs in the Philippines.


International tourist arrivals in April, on the other hand, reached 662,987, up 12 percent from over 591,137 visitors year-on-year. Tourism directly creates jobs, especially in resort areas outside of the metropolis. Foreign tourists also drive the economy and boost rural incomes.