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Domestic spending to offset El Niño

Posted on February 03, 2016

ECONOMIC EXPANSION will likely pick up this year despite a slump in farm output and a tapering of cash remittances, analysts said yesterday, as household and election-related spending push growth above 6%.

Slowing deployment of and growth of cash remittances from Filipino workers abroad are expected to become the norm, economists said. -- AFP
Speaking during the “Eagle Watch” briefing at the Ateneo Professional Schools in Rockwell, Makati City on Tuesday, Ateneo de Manila University (AdMU) economics professor Alvin P. Ang said he expects gross domestic product (GDP) to expand by 6.4% in 2016 -- taking off from 2015’s 5.8% -- with uncertainty related to the May elections that will cause investors to stay momentarily on the sidelines seen as a mere hiccup to the current growth momentum.

Mr. Ang said economic growth will likely be increasingly buoyed by booming business process outsourcing (BPO) receipts that are expected to outpace remittance growth in the next three years, robust household demand and spending by tourists.

Even factoring in the impact of the “severe” El Niño seen lasting as late as July, the economist sees first-quarter growth at 6.38%, slightly better than the 6.3% seen the previous quarter and well above the 5% recorded a year ago.

Mr. Ang also cited “election-related spending and some spillovers in the durable investment last fourth quarter... part of it is cars and equipment,” saying: “Those equipment should go online into manufacturing these first and second quarters to compensate for some weakening in other sectors.”

Robust private consumption and a steady improvement in government spending will remain key drivers of growth, Mr. Ang said, noting faster public disbursements seen since the second half of 2015.

BPO receipts will continue to post a “double-digit” increase this year to offset slowing growth in cash remittances.

“As early as August 2014, we already said remittances will start to fall already. Deployment has already tapered off, even before the problem right now with oil,” Mr. Ang said, projecting a mere 2.75% growth in the money sent home by overseas Filipino workers.

“Maybe this year 2.5% [remittances] growth will be the norm, and that will be for the next few years.”

Mr. Ang said growth could still pick up despite agricultural losses from the El Niño-induced drought, an export slump and weak remittances. “From the international perspective, even if we have very low exports and tapering remittances, we actually have tourism and BPO as buffers and there is an opportunity to increase it [sic] further.”

At the December meeting of its policy-making Monetary Board, the Bangko Sentral ng Pilipinas projected remittances to grow by 4% this year and revised its 2015 forecast to 4% from 5% previously. In 2014, remittances grew by 5.9% to $24.35 billion, equivalent to about 8.5% of the country’s GDP.

Still, Mr. Ang flagged a possible slight slowdown in the third quarter -- to a 6.17% pace from the 6.72% forecast for the second quarter -- which he described as a “learning curve” as the country transitions under a new administration that takes office on June 30.

Asked on his relatively bullish outlook for the economy -- with a sustained above-6% growth across all quarters of 2016 -- Mr. Ang said the pressure to maintain the country’s current investment grade ratings would likely push the next government to stick largely to the current reform tack.

“The investment grade is too much a pressure -- just go down one notch or change the outlook from stable to negative and you’re in trouble,” Mr. Ang told reporters partly in Filipino.

“PNoy [the nickname of Pres. Benigno S. C. Aquino III] invested a lot in that, so that’s why I have high expectations for growth. That’s the potential capacity if they just push it.”

The Philippines has so far clinched 24 investment rating upgrades -- from Fitch Ratings, Moody’s Investors Service, Standard & Poor’s Rating Services and others -- since Mr. Aquino took office in June 2010.

Also yesterday, ING Bank said in a separate market view e-mailed to reporters that it sees 2016 growth at 6.2%, with “strong” public spending likely to offset contractions in agriculture output amid the ongoing drought.

Agriculture Secretary Proceso J. Alcala said in a television interview yesterday that he still expected production of unmilled rice -- which accounts for a fifth of the total value of farm output -- at 18 million metric tons at least this year, barely flat from 2015, despite El Niño’s impact due to state assistance to farmers. The Philippine Statistics Authority had said last month, however, that it expected a 1.48% contraction for the grain this semester.

“We believe that the strong government spending and infrastructure provisions would more than offset the drag that El Niño would bring to agriculture,” ING Bank N.V. Manila senior economist Jose Mario I. Cuyegkeng said in a market comment yesterday.

“Government has released a good portion of the 2016 budget to departments early this month to enable government department sand agencies to beat the March 25 start of the election ban.”

The government targets GDP to grow by 7%-8% for the year.

As for other macroeconomic factors, ADMU’s Mr. Ang said he expects inflation to average 1.6% for 2016, still below a 2%-4% official target band for the full year. The peso is projected to close the year at P48.50 against the dollar, while the Philippine Stock Exchange index is expected to go up by 5% to reach the 7,200 level despite market volatility. -- Melissa Luz T. Lopez