Phl growth sustainable – StanChart

MANILA, Philippines - The Philippines is seen to sustain its economic growth momentum over the near-term but may be hampered by growing concerns on infrastructure and investment, British bank Standard Chartered Bank said in a statement.

In its global research, StanChart said: “We are realistically optimistic of the Philippines growth story and expect the economy to continue growing at above-trend levels over the next two to three years.”

“There is also growing concern about infrastructure and investment although most believe that progress is underway,” it added.

StanChart also noted the varying sentiment between local and international business communities with regard to Philippine growth prospects.

“We note that the Philippines does not rank as high as do China and other ASEAN neighbors in most international indices such as the Global Competitiveness Index, the Ease of Doing Business Index, and the Logistics Performance Index. These rankings, based at least in part on international perception, show that there are still challenges to overcome,” it noted.

StanChart further noted that the sustained growth would be fueled by domestic developments.

“We believe the long-term economic outlook for the Philippines lies in between the extremely positive local and the more skeptical international view. It will take time for the dichotomy between local and international sentiment to converge, which would imply that more foreign interest and foreign direct investment (FDI) picks up as the domestically driven growth story continues,” it said.

Investment growth in terms of improving the structural development of the economy, StanChart said, may remain domestically led.

“The investment story is likely to decide whether GDP growth remains in the mid-to-upper-six percent range or slips back,” it said.

Local and international opinion, it noted, are aligned on the need for more infrastructure development.

“Our feeling on the ground was that local clients, investors and government entities agree that more needs to be done on the infrastructure front. For example, direct flights between airport hubs and the provinces can open up the tourism sector in the Visayas and Mindanao,” it said.

But StanChart study said there have been efforts from the government to address these infrastructure-related concerns.

“The government is already taking steps to improve infrastructure. We believe the pace of infrastructural development will drive economic growth in the coming years,” it said.

Aside from infrastructure, StanChart also took note of the concerns of temporary speculative inflows without a substantial pick-up in longer-term investment.

“These concerns are being addressed by the central bank, Bangko Sentral ng Pilipinas (BSP), in its attempts to slow any rapid changes in liquidity and trends in the Philippine peso,” it said. “We are, however, yet to see a consistent pick-up in investment-driven growth.”

Based on the study’s statistics, investment, particularly foreign investment inflows, has lagged those of its ASEAN peers in recent years. Only an average of 22.1 percent of the Philippines’ GDP growth over the past five years has been attributed to gross fixed-capital formation, compared with 35.7 percent for Indonesia and 39.6 percent for Vietnam.

In addition, the World Investment Report 2012 highlighted that the Philippines’ FDI inflow was $1.2 billion in 2011, 50 percent more than Cambodia’s but only about a sixth of Vietnam’s.

Despite some setbacks and concerns, StanChart said the upgrade would soon be achieved by the Philippines.

“Many also expect to see the sovereign upgrade to investment grade occurring sooner rather than later. Our call is that the upgrade will happen, but not until 2014. Most of those we spoke with expect it before end-2013,” it said.

“The upgrade may occur earlier in the event that infrastructural development and investment growth beat expectations. The general consensus from our meetings is that the Philippines is well positioned to register above-trend growth over the medium term. Even though the majority felt that it will be a challenge to match or better the 6.6 percent GDP growth in 2012, most felt that growth will come in above the 10-year average of 5.2 percent.”