Phl economy remains in ‘sweet spot’

MANILA, Philippines - The Philippine economy remains in a “sweet spot” despite the devastation left by Typhoon Yolanda as strong domestic demand, rising remittances and the prospect of more structural reforms are expected to continue to boost growth, Singapore-based bank DBS said.

In its Economic Markets Strategy paper released on Thursday, DBS predicted a seven percent Gross Domestic Product for this year and 6.5 percent for 2014 or slightly lower than the 6.7 percent it previously forecast.

“Typhoon Haiyan (Yolanda) has put a dent on an otherwise good year for the Philippines. The economy is in a sweet spot,“ DBS said. “The recent typhoon will put some upward pressure on inflation but the overall knock on the economy is likely to be limited.”

“With the CPI (consumer price index) inflation still likely to remain within the 3-5 percent target range, the party may go on for now,” it added.

The bank said the worst-affected areas in Eastern Visayas accounts for two percent of GDP and there could be some “temporary supply shocks” in the economy that could push CPI inflation to 4.4 percent in 2014.

It also cited the allocation of the equivalent of $900 million for the initial reconstruction of calamity-hit areas as well as the impending passage of the P2.268-trillion national budget for 2014.

The rehabilitation plan is similar to the reconstruction project of Metro Manila and other parts of Luzon in 2009 when the capital and nearby areas were hit by powerful typhoons – including Tropical Storm Ondoy – when the current national budget was three times the amount in 2010, DBS said.

The overall macro risk profile of the economy is likely to remain supportive of the government’s financing needs next year.

“The pace of this rebuilding and implementation phase are crucial in determining how much a boost these projects will have on the economy,” the bank added.

Not only domestic demand is expected to continue to support the economy in 2014 but the country would also benefit from the stronger pick-up in the global economy.

DBS also said private consumption and investment continued to contribute to almost all the growth in the third quarter of the year.     

“This is not surprising. The economy is undergoing an infrastructure overhaul that has seen the construction sector grow at more than 15 percent year-on-year in the past two years,” DBS said.

While construction growth in the public sector still exceeded the private sector’s, the latter has still grown at double-digit rate in 2013.

The bank also said exports as well as the manufacturing sectors have picked up.

“Looking ahead, sustaining sound fiscal management is important. Tax revenue collection has been a key policy success,” DBS said, adding structural reforms remain crucial for longer-term growth.

“There has been some talks of liberalization measures in the past one year or so but there has been no significant announcement on this front yet,” it said.