After years spent languishing behind its neighbors, the Philippines is finally catching up with its fellow Asian tiger economies as it posts some of the fastest growth rates in the world.
With the World Bank forecasting expansion of more than 6 percent for eight years until 2019 – unparalleled in the nation’s history – the Philippines is mimicking gains seen in Malaysia and Thailand in the 1990s as they industrialized. Growth in the Philippines was 6.8 percent in 2016, faster than China’s, data released on Thursday showed.
The region’s former powerhouses are giving way to newcomers like the Philippines and Vietnam, whose younger populations and rising middle classes help lure manufacturers. While President Rodrigo Duterte has alienated some with his anti-US rhetoric and deadly drug war, his ambitious $160 billion infrastructure plan and push for greater investment from China, Russia and the Middle East are strengthening the outlook.
“We are seeing a transformation to a stronger, more developed economy,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “Recent administrations worked hard to ensure macroeconomic stability which serves as its anchor.”
The Philippine economy – now about $292 billion – was more than twice the size of Malaysia’s and 10 times bigger than Singapore’s in 1960. A steady decline since then got it the label “the sick man of Asia” while its peers expanded rapidly. The nation’s resurgence begun with former President Benigno Aquino, who took office in 2010, raised revenue, curbed corruption and won the nation’s first-ever investment grade credit ratings.
By the end of this decade, the Philippines can achieve upper middle-income country status with per capita income of at least $4,126, the Asian Development Bank forecasts, joining the likes of China, Malaysia and Thailand.
Even with the strong growth outlook, financial markets have been mixed. While the government last week sold $2 billion of global bonds at the tightest spread ever, the peso is among the worst performing Asian currencies in the past six months and stocks have faltered.
Manufacturing, FDI
The ADB has said that boosting manufacturing is key to creating more jobs. The Philippines is among the least reliant on exports in the region, depending instead on a youthful and growing consumer base. Household spending, which makes up about 70 percent of gross domestic product, rose more than 6 percent for an eighth quarter.
“The economic takeoffs of countries like Thailand and Malaysia were built on their manufacturing prowess and this is where the government must redouble their efforts,” Neumann said. “This is a tough nut to crack. It will require infrastructure improvements and attracting more foreign direct investment to turn that into a reality.”
FDI to the Philippines surged more than five times to $5.8 billion between 2010 and 2015, but that still pales in comparison to Thailand’s $9 billion and Malaysia’s $11 billion.
To compete, Duterte is planning to boost infrastructure spending to 7 percent of GDP from the previous administration’s goal of 5 percent. He is also pushing for changes to tax laws to boost revenue and amend the Constitution to shift to federalism.
“If they manage to push through tax reforms and boost infrastructure spending, manufacturing will now become its next leg of growth, adding to remittances and outsourcing,” said Michael Wan, an economist at Credit Suisse Group AG in Singapore. “This will boost the growth potential to at least 7 percent in the years ahead.” (Bloomberg)