Rises in consumption and business investment help curb concern over Duterte and Trump

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By Michael Peel in Bangkok | January 26, 2017

Economic growth in the Philippines surged in 2016, making it among the world’s fastest-growing countries last year as strong domestic demand helped it shrug off political risks at home and abroad.

Southeast Asia’s second most populous country has emerged as a regional economic hotspot over the past few years as rivals have been hobbled by problems ranging from corruption scandals to political instability.

Gross domestic product climbed 6.8 per cent, topping China’s 6.7 per cent, boosted by business investment and spending on the election that brought President Rodrigo Duterte to power.

 But the outlook for the Philippines has clouded. In particular, the future of its flagship US-focused outsourcing industry is uncertain as Mr Duterte has lashed out at Washington and President Donald Trump has criticised American companies who move jobs offshore.

 Capital Economics said it expected “solid growth rates” to continue in the near term despite the “major downside risks” of political uncertainties in both the Philippines and the US. It noted that low interest rates should support investment, modest consumer debt levels ought to sustain household spending and a further boost would come from a big government infrastructure programme of up to $160bn.

The country reported higher than expected quarter-on-quarter GDP growth of 1.7 per cent in the last three months of 2016. That has boosted officials’ confidence that the economy will hit its target of between 6.5 per cent and 7.5 per cent expansion this year, even if the central bank raises interest rates. “Our strong economic performance will probably be sustainable over the long run,” Ernesto Pernia, the Philippines’ economic planning secretary, told reporters on Thursday.

 Household consumption grew 6.3 per cent year on year in the fourth quarter, while business investment was up 15 per cent. That outweighed a 5.2 per cent fall in the country’s export sector in the 11 months leading up to November due to sagging international demand for products ranging from copper to coconut oil.

Joseph Incalcaterra, an economist with HSBC, said the latest numbers were part of a trend that began when the previous Philippine administration removed bureaucratic blocks on infrastructure spending. “This momentum has sustained since then, and as a result, investment continues to make a near-record contribution to the structure of growth,” he said. “There are definitely some risks on the horizon stemming from protectionist policies in the US but we think the Philippines is less at risk compared to other Asian economies.”

 Yet the political impact of the new governments in both Manila and Washington remains unpredictable. This is particularly worrisome for the Philippines’ office administration and information technology outsourcing sector, which gets more than two-thirds of its business from US companies. Mr Duterte spooked international businesses last year when he announced the Philippines’ “separation” from its long-time ally the US.

Optimists say Mr Trump’s attacks on outsourcing are aimed primarily at countries with which the US has a goods deficit. Rahul Bajoria, a Barclays regional economist, said any possible political downsides for the Philippines should be more than offset by positive economic trends. “Domestic activity remains very strong, and with government planning to continue with its fiscal spending plan . . . I think growth risks are limited,” he said.

Sources: https://www.ft.com/content/3d3042d4-e387-11e6-8405-9e5580d6e5fb