British bank Standard Chartered sees the Philippine economy moving toward a “balanced” and higher growth trend supported by both domestic consumption and investment, with infrastructure spending becoming a key catalyst.
In a research dated June 17 titled: “Philippines—Infrastructure boom to boost growth,” Stanchart also projected that the peso would resume its upswing on the back of “solid economic fundamentals.” The peso was projected to appreciate to 37 to a dollar on the average in 2015.
Stanchart, the oldest foreign bank to set up shop in the Philippines, raised its growth forecasts for the Philippines to 6.9 percent this year from its earlier outlook of 5.8 percent. Growth forecasts for 2014 and 2015 were likewise upgraded to 6.3 percent and 7 percent from 6.1 percent and 5.5 percent, respectively.
“Overall, we expect the Philippines to register above-trend growth in the next three years, and believe this period presents a golden opportunity for the country to leverage its investment potential and accelerate its growth trajectory,” according tot the research.
In the last 10 years, the country’s average growth was slightly below 5 percent.
The research, written by economist Jeff Ng, said the Philippine gross domestic product growth would likely be boosted by increases in public-private partnership (PPP) and non-PPP investments. The bank assumed that more PPP projects would be finalized by the end of 2013 and PPP construction would peak in 2014-15.
“In our core scenario, we expect investment growth to accelerate in the next three years as a result of more PPP projects moving into the construction phrase, along with increased foreign interest and investment in the economy, and a gradually improving global economy in the medium term,” the research stated.
The bank’s core scenario has taken into consideration delays in the commencement of PPP projects due to the government’s scrutiny of the quality of the bids. The total value of PPPs was estimated at $3 billion to $4 billion from this year through 2015 under this base-case scenario.
Stanchart is expecting a surge in investment growth in two phases, first in the period immediately following the upgrade to investment grade and, second, when the PPPs are completed by 2015. “Hence, GDP growth stays above trend, growing around 6 to 7 percent annually. Due to the spike in domestic investment, growth remains domestic market-driven, boosted slightly by improving export growth.”
On foreign exchange trading, the Stanchart study noted that a strong GDP growth, solid current account balance and sustained accumulation of foreign exchange reserves would support peso appreciation in the medium term.
“However, considering Indonesia’s experience following its upgrade to investment grade, we believe that the speed of peso appreciation is likely to slow. This is also reinforced by valuation concerns, as the peso’s real effective exchange rate has reached its strongest level since June 1997,” the research indicated.
The best-case scenario is seen allowing the country to grow by 7 to 8 percent over the medium term. This assumed a strong progress in PPPs led by favorable local and global investor sentiment which will ensure that many projects will start construction in 2014. This scenario also assumes rapid progress on reforms aimed at making it easier to do business in the country.
With more successful high-quality bids, the government is seen to move projects amounting to $5 billion to $6 billion in 2013-15.
Investment to GDP is assumed to increase steadily over the next three years alongside strong foreign investor interest while export growth will likewise accelerate.
(Story courtesy of Doris Dumlao of Philippine Daily Inquirer and Inquirer.net)
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