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Business

Report: Phl has highest growth potential in TIPs

The Philippine Star

MANILA, Philippines - The Philippines has the highest growth potential among a new group of nations expected to lead global economic growth over the next seven years, a global banking giant said.

In a report, DBS Ltd. said the so-called TIPs— Thailand, Indonesia and the Philippines— are increasingly becoming a major growth driver as advanced economies continued to reel from the debt crisis. 

“We argue that optimism in the TIP economies is justified, as GDP (gross domestic product) growth is expected to be elevated relative to the past decade,” DBS economist Eugene Leow said in the report on Tuesday.

“The Philippines has the highest growth potential among the TIP economies given minimal economic constraints,” he added.

In particular, the country, whose GDP expanded by a surprising 7.8 percent in the first quarter, could benefit from the current administration’s “promise” of reform that could bode well for more investments, the report said. 

The consumption-driven economy, it said, could grow between 7-8 percent through 2020 given its healthy fiscal dynamics, manageable inflation outlook and high liquidity yet to be fully utilized.

Leow pointed out that the Philippines, in contrast to Indonesia, also has a strong current account balance, which implies it has more than enough resources to meet external trade obligations and foreign debt.

Indonesia, according to the economist, is facing “twin deficits” in current account balance and in the state’s budget which may constrain its ability to respond to external shocks. 

As for Thailand, a “stretched” banking sector that could slow investments and ageing demographic profile— in contrast to Indonesia and Philippines’ growing middle class— will remain a challenge to growth.

“A lack of constraints (for the Philippines) does not imply that GDP will grow at its potential as attracting sufficient investment is a key challenge,” Leow explained.

“We believe a more conservative growth rate figure of 6-6.5 percent is realistic in the coming eight years as we factor a gradual improvement in investment rates,” he added.

Leow noted, however, that at this early, investor perception in the country has changed, with the equity markets rallying to record-highs and bond yields dropping to the floor followed by two investment grade ratings this year. 

The decision of Fitch Ratings and Standard & Poor’s Ratings Services to raise the country to BBB- will allow the Philippines to raise foreign direct investments (FDI) to three percent of GDP from the current one percent. 

FDI and domestic investments are also seen to benefit from large-scale infrastructure public-private partnership projects, three of which have been already awarded, while the rest are underway.   

By 2020, the middle-class sector in the country is seen to grow to 29 million, accounting for roughly 25 percent of the total population, adding additional “workforce” to business process outsourcing industry.

The figure is lower than Indonesia’s 131 million and Thailand’s 36 million, but Leow noted that in the Philippines, “the peak of demographic dividend is still about a decade away.”

“Conditions have fallen into place for the Philippines to re-emerge as an investment destination of choice,” Leow said.

vuukle comment

EUGENE LEOW

FITCH RATINGS AND STANDARD

GROWTH

INDONESIA AND PHILIPPINES

INDONESIA AND THE PHILIPPINES

LEOW

LTD

PHILIPPINES

RATINGS SERVICES

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