UP-based think tank sees 5.9% GDP growth

By Ted P. Torres and Iris C. Gonzales, The Philippine Star

Posted at Aug 27 2012 10:59 AM | Updated as of Aug 27 2012 06:59 PM

Manila, Philippines - A think tank based at the University of the Philippines sees the Philippine economy growing close to six percent this year on the back of higher government spending but a global accountancy and finance group projects a slower rate of a little over four percent due to slowing remittances.

The Institute for Development and Econometric Analysis Inc. (IDEA) projects the country’s gross domestic product (GDP) expanding 5.9 percent this year while the Institute of Chartered Accountants in England and Wales (ICAEW) is looking at a lower expansion of 4.1 percent.

Dr. Ernesto Pernia, IDEA fellow and professor of the UP School of Economics, said this year’s GDP growth projection is within the government’s forecast of between five percent and six percent.

Pernia said the growth target assumes that government spending speeds up, particularly in infrastructure, more Public-Private Partnership (PPP) programs get off the ground, and remittances will remain strong albeit at a slower five percent per annum pace.

He added that the forecast also took into consideration that private consumption will continue to be the key drivers, inflation will remain benign, and interest rates remain in the four percent to six percent levels.

For the next two years, the non-stock and non-partisan organization that provides products and services in the field of economic research, industry analysis, and instruction in the Philippines sees the country’s GDP growing by an average of five percent.

“IDEA is guardedly optimistic about positive growth for the Philippine economy in 2012, and the next two years,” Pernia said.

He pointed out that achieving and maintaining a growth rate of over six percent was not in the immediate horizon.

He said that a four to five percent growth rate was possible with the remittances from overseas Filipinos, business process outsourcing (BPOs), tourism and the services sector.

“Without industry or manufacturing, a six-percent growth rate and beyond was not sustainable,” he said.

Immediately, there were several risks and uncertainties such as euro zone crisis conditions, the US elections, the China economy, global oil prices, inward foreign direct investments, and hot money inflows.

Then domestically, there were a lot of constraints, which includes poor infrastructure, institutional weaknesses, corruption, bureaucracy, and many obstructions to making business easier for both local and foreign businesses.

The Philippines must allow investments to drive the economy over consumption. Investments will fund the export industry, revive the agriculture sector, modernize the agriculture sector, and start a manufacturing industry.

Meanwhile, ICAEW said in a recent report that Philippine GDP will grow 4.1 percent this year on the back of falling remittances from overseas Filipino workers.

The report-titled “Economic Insight: Southeast Asia” stated that the Philippines and other countries in the region to be able to invest more in infrastructure in the coming years, which could push economic growth.

“A strong mandate for the new Aquino government should encourage investor interest in an ambitious infrastructure program that could help the country achieve output expansions of 3.7 percent in 2013 and 4.2 percent in 2014,” the report said.

Charles Davis, ICAEW economic advisor and head of macroeconomics said formerly risky countries such as Philippines and Indonesia could now borrow at a cheaper rate from global capital markets.

He said investors are now parking their funds in the region, deemed as safer investment options compared to their euro zone member states.

“With the availability of cheap money for the Association of Southeast Asian (ASEAN) governments, we expect that public investment in needed infrastructure will increase this year.”