PHL One of the Fastest-Growing Economies

The Philippines remains one of the fastest-growing economies in Southeast Asia and will continue to enjoy the status in the coming years because of our improving macroeconomic fundamentals.

While our gross domestic product (GDP) growth slowed to a four-year low of 5.5 percent in the second quarter of 2019, most of our Asean neighbors were, in fact,  expanding below 4 percent. Only Vietnam grew at a faster rate than we did in the previous quarter.

A buoyant domestic economy supported by strong consumer spending, meanwhile, will shield us from the effects of the trade war between the United States and China.

A benign inflation rate, pump-priming through the “Build, Build, Build” program of the Duterte administration and the pro-growth policy of the Bangko Sentral ng Pilipinas (BSP) are certain to boost economic growth in the latter months of 2019.

The BSP hinted last week that it was inclined to reduce the benchmark borrowing rate by another 25 basis points to 4 percent before the end of the year in view of slowing inflation. BSP Governor Benjamin Diokno says another 25-bps cut in policy rate will give the banking sector more time to prepare on what to do with extra liquidity.

I am very confident the economy will do much better in the coming quarters. Even major credit rating agencies such as Moody’s Investors Service share my enthusiasm. Moody’s, in its credit analysis for the Philippines, said it expects economic growth to recover from the temporary slowdown caused in part by the budget delay in the first half of 2019.

“The momentum for fiscal reform has been sustained, improving prospects for further improvement in the Philippines’s fiscal profile. Broad macroeconomic and financial stability remains intact: Headline inflation has been restored to within the Central Bank’s target band, while the balance of payments has remained stable despite a widening trade deficit,” it said.

In its latest regional outlook for 16 Asia-Pacific economies, Moody’s said it expects the Philippines to grow 5.8 percent in 2019, faster than the country’s actual expansion of 5.6 percent in the first half. This means growth will pick up to around 6 percent in the second half. For 2020, Moody’s expects the economy to rebound with a growth of 6.2 percent.

In contrast, most of our neighbors are expected to bear the impact of weaker trade and investment because of the lingering concerns over the US-China trade tiff. “We project the slowest rates of growth since the global financial crisis for Hong Kong, Singapore and Korea,” Moody’s said in its Asia Pacific: Regional Growth Update.

Moody’s said of the 16 Asia-Pacific economies it included in the report, Hong Kong and Singapore showed particularly weak expansions this year, with very large deteriorations in real GDP growth when compared with the first half of 2018.

It said externally oriented economies saw a sharper growth slowdown in the first six months of 2019, while domestic factors had a greater influence on growth in Japan, India and the Philippines.

The weaker global economy stunted Asian exports while the uncertain operating environment weighed on investment, it said.

“As for the Philippines, the delay in the passing of the government budget has disrupted its infrastructure build-up,” it said. In Malaysia and Sri Lanka, fiscal tightening posed drags while in India, the moderation in business sentiment and slow flow of credit to corporates contributed to weaker investment.

The good news is that the slower overall GDP growth in the region did not weigh significantly on broader employment conditions and the generally benign inflation supports the consumers’ purchasing power across the region.

The report covers the economies of Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Mongolia, New Zealand, the Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.

Among the Asean economies, the Philippines is seen performing better than most of its neighbors such as Singapore, which is predicted to grow 0.5 percent this year; Malaysia, 4.4 percent; Thailand, 2.7 percent; and Indonesia, 4.9 percent. Vietnam is seen growing faster at 6.7 percent.

Moody’s predicted the Philippines would grow 6.2 percent next year, faster than China’s 5.8 percent, Singapore’s 1.2 percent, Malaysia’s 4.3 percent, Thailand’s 3.1 percent and Indonesia’s 4.7 percent.

There is no doubt that our economy will expand faster in the coming years, supported by declining inflation and interest rates.