By Arno Maierbrugger/Gulf Times Correspondent/Bangkok
Economic growth in the Philippines will overtake China’s by 2016 as the former country continues to be an outperformer due to a strong domestic upswing in businesses and industry, growing foreign direct investments and record-high remittances from Filipinos working abroad, according to GDP forecasts in the recently released “2015 Annual Outlook” by Citibank.
In turn, China, long time among the fastest growing countries in Asia and worldwide, is cooling down its economy to make GDP growth “more sustainable” as it is suffering from high public debt, reduced domestic consumption, over-investment in housing and infrastructure and regional economic imbalances. China will also be outpaced by India, according to the forecast.
In the fourth quarter of 2014, the Philippine economy expanded by 6.9%, the highest since fourth quarter of 2010. In the whole fiscal year 2014, the country reached GDP growth of 6.1%, a rate already among the highest of major Asian economies. Forecast for 2015 is 6.5%, and 7.3% for 2016.
China, instead, reached a “disappointing” 7.3% in 2014, and the forecasts for 2015 and 2016 are 6.9% and 6.7%, respectively.
“China is balancing on the steep and narrow path between growth and reform,” the Citibank study said, adding that “This could begin a new seven-year cycle during which GDP growth might likely fall into a range of 6 to 7%.”
The robust growth in the Philippines is widely attributed to President Benigno Aquino III’s economic reforms, favourable fiscal management and strict anti-corruption campaign which earned the country several rating upgrades by major credit rating agencies to investment grade last year and kicked off a remarkable inflow of foreign direct investment. Public spending has also boosted the economy, and sectors such as construction and business process outsourcing saw the fastest growth. Adding to that, the Philippines has become more appealing for large-scale investors such as car and electronics manufacturers which look to diversify away from Thailand due to the country’s political instability and unstable outlook and from China due to increasing wages and general costs there.
Last but not least, the plunging oil prices had also a very positive effect on the Philippine economy. According to data from Bank of America’s investment division, every 10% drop in oil prices translates into 0.3% GDP growth in the Philippines. Adding total remittances to the Philippines in 2014 of $28bn, up 8.5% from 2013, it is no wonder that the country now has a very robust current account balance and a declining inflation rate which is forecast to reach 3.6% in 2016 versus 4.3% in 2014.
The Philippine peso was the best-performing currency in the ten-member Association of Southeast Asian Nations, or Asean, in the last quarter of 2014, and the only currency in the region that strengthened against the US dollar in the period.
One of the sectors that are still under-performing, though, is tourism. The industry — apart from urban areas and a few popular developed holiday spots — still suffers from a lack of modern hotels and transport infrastructure and is desperately looking for investors. The 5mn foreign visitors to the country in 2014 clearly fell below the government’s target of 6.5mn, and the very ambitious goal of 10mn foreign visitors in 2016 somehow seems to be out of reach.
