Goldman Sachs forecast 6% annual growth for PH until 2016

From a report by Lois Calderon, ANC

Posted at Jan 31 2013 10:15 PM | Updated as of Feb 01 2013 05:48 PM

MANILA – Economists say last year's strong growth doesn't need to be a fluke and that it can be sustained if the economy has more legs.

They say the economy cannot rely on just its current drivers: domestic demand that's fueled by remittances, low interest rates and BPOs.

On Wednesday, renowned economist Nouriel Roubini said the economy should be growing at 7% plus.

US banking giant Goldman Sachs on Thursday says the economy will grow 6% a year until 2016.

Its regional economist Mark Tan says that can be exceeded, and he has a laundry list of what's needed for that.

“One is the continued accumulation of physical capital in the form of infrastructure investment, machinery and CAPEX. The other thing which is often neglected is the focus on labor productivity. The push for development of human capital should be a focus as well. That’s the key ingredients for increase in potential growth,” said Tan.

Luz Lorenzo of Maybank ATR Kim Eng says she hopes the economy will attract more foreign direct investments too.

“If you want to see much higher growth than what we are seeing now, then I think we will have to see more FDI come in,” she said.

The government seems to agree.

NEDA chief Arsenio Balisacan says the Philippines just needs to look at neighbor Indonesia.

"We need massive investments particularly from the private sector. But to complement that investment, we need government to accelerate spending in infrastructure. Indonesia has been growing consistently for the last 25 to 30 years. Even during the global financial crisis they continued to grow at a very high rate. They have shown stability and the capacity to be able to grow on a long term basis. That’s what we want to achieve,” he said.

Low interest rates have helped boost growth in recent years, but some economists say the Bangko Sentral may soon have to go into reverse or risk inflation.

HSBC, RBS, Nomura and Goldman Sachs all bet that rate cuts have ended and rate increases are coming.

“We think the backdrop of strong growth and manageable inflation pressures will be the main anchor for keeping policy rates on hold but we do see rate hikes in early 2014,” said Tan.

The BSP seems to have succeeded in cutting rates to boost growth without stoking inflation.

Markets are now wondering if it knows when and how much to raise rates to keep inflation in check without tripping up the economy.