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Philippines: Asia’s “Sick Man” Gets Strong

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Pacific Money

Philippines: Asia’s “Sick Man” Gets Strong

Once again posting impressive economic growth, the Philippines “remains a bright spot” in Asia.

Filipino President Benigno Aquino III reportedly loves telling anyone who will listen that the country is no longer the “sick man of Asia.” With economic growth rising by more than 7 percent again for the fourth straight quarter, the leader of the Southeast Asian nation has a point.

In the latest June quarter, gross domestic product expanded by 7.5 percent from a year earlier, following the previous quarter’s 7.7 percent gain. The rise exceeded even the 7.2 percent median estimate of economists polled by Bloomberg News.

“The Philippines remains a bright spot in Asia,” Jeff Ng, an economist at Standard Chartered in Singapore, told Bloomberg.

“While expansions in other countries are fading, Philippine GDP growth remains very much robust and we see growth persisting at above-trend levels.”

According to Bloomberg surveys, the Philippines could be among the world’s five fastest-growing economies in 2013 and 2014, likely expanding by 6.9 percent this year and 6 percent in 2014.

Filipino economic planning minister Arsenio Balisacan told reporters the country would surpass its 2013 growth target of 6 to 7 percent.

ANZ’s Eugenia Fabon Victorino described the latest GDP figure as “the strong man of Asia remains strong!” The economy posted its 16th straight quarter of growth, with private consumption gaining 6.2 percent over the previous year, government spending up 9.5 percent, but investment posting a standout 19.7 percent rise, boosted by strong construction spending.

Trade growth was less buoyant, with a 4 percent rise in services exports only partially offsetting an 8.7 percent fall in goods exports. Exports account for around a third of the economy, which has been buffeted by weakness in major trading partners, although the nation’s thriving business process outsourcing industry has helped lift services.

In a research note, Victorino said the Philippine economy would expand by 7.1 percent in 2013, with domestic growth underpinned by public and private investment.

Victorino pointed to high business confidence and low debt, with outstanding credit at around a third of GDP, “the lowest in emerging Asia” and loan growth to key sectors pointing to “ample projects in the pipeline.”

The analyst expects the Philippines central bank, Bangko Sentral ng Pilipinas (BSP) to hold its key overnight borrowing rate steady at 3.5 percent through the first half of 2014, although pointing to “upward risks” to ANZ’s 2014 inflation forecast of 3.4 percent. The BSP has held its benchmark rate at a record low 3.5 percent since last October.

The strengthening Philippine economy is even more remarkable following a regional slowdown that has seen Indonesia, Malaysia and Thailand battered by a slowing China and capital flight back to developed economies. Thailand recently entered into recession for the first time since 2009, while Indonesia posted its weakest expansion since 2010.

Comparing the nation to Asia’s “emerging tigers,” the BSP’s deputy governor Diwa Guinigundo told an ASEAN forum that “this cat is beginning to let the world hear its mighty roar”.

Guinigundo cited solid GDP growth and manageable inflation within the government’s 3 to 5 percent target range.

“We call this sweet convergence of high growth and low inflation. To a large extent, this was on account of the expansion in the country’s potential capacity,” Guinigundo was quoted saying by the Manila Times.

He also noted that the nation posted a balance of payments surplus amounting to $1.5 billion in the first quarter, with total reserves reaching $82.9 billion as of July – equivalent to a year’s worth of goods imports and payments.

“This shows that the Philippines possesses sufficient reserves to ride out any turbulent period that we may encounter,” he said.

Regional risks

However, the central bank official noted risks from the U.S. Federal Reserve’s unwinding of its monetary stimulus, “which may result in the outflow of capital from emerging market economies,” in addition to the ongoing recoveries in the United States and eurozone.

Regional risks were highlighted this week, when President Aquino reportedly cancelled a visit to a Chinese trade fair over a territorial dispute with China.

According to diplomatic sources, the president cancelled a visit to Nanning for Tuesday’s opening of the annual China-ASEAN Exposition after Beijing demanded Manila withdraw its international arbitration case challenging China’s claim to nearly the entire South China Sea.

The two countries have been in a diplomatic rift since last year over maritime disputes, with Brunei, Malaysia, Vietnam and Taiwan also having overlapping claims.

For now, however, Asia’s new “strong man” is economically outmuscling its regional rivals.