Will 2013 be the ‘go ahead’ year?

By Alvin P. Ang

(The Filipino Connection)


Last year we said that 2012 is a breakout year for the Philippines. We were not disappointed.

Accolades here and there have flooded the world about the revival of the Philippine economy —that 2012 indeed was a good year. We have seen unprecedented levels of growth in the equities market and incredibly low interest rate regime hovering for most of the year. These happened despite challenges in the global economy: the problems that continue to plague the Eurozone, the threat of the US fiscal cliff, among others.

Locally, not even the negative impacts of the successive typhoons and monsoon rains had dampened the improving business climate. The promise to clean the bureaucracy and change the way of doing things undoubtedly have reached investors as confidence have strengthened.

The passage of administration measures such as the responsible parenthood and sin tax laws, as well as the removal of former Chief Renato Corona, Justice show the current administration’s resolve to move swiftly. The preliminary peace agreement in Mindanao also helped assure that peace and order issues will be settled.

We are seeing strong double-digit growths in capital formation in the last two years – a pattern observable in the Philippines when confidence in the administration is high and up. Because of these, gross domestic product for 2012 likely hit 6.5 percent. This growth is not a blip unlike 2010 or 2000 which are base effects due to a weak prior year. It is backed up by confidence, resilience and political will.

This 2013, the economy is on a step up. At current investment levels, growth can match 6.5 percent and  even up to seven percent. Current growth continues to be sustained by overseas Filipinos’ remittances which, year-by-year, continue to increase albeit at a slower pace. The services sector, led by the business process outsourcing and tourism sectors, continue to make headway for growth. Last year, construction, finance, real estate, transportation and communication proved to be the growth factors.

This year, these same sectors will benefit  from the large foreign inflows of investments pulling with it local investors. Communication will push further especially as consumers have shifted from mere texting to using mobile internet, as evidenced by the lower text volumes during the holidays.

Real estate is going to be on the overdrive: the competition for the lower to upper middle-class residential housing and condominiums catering to overseas Filipinos, will now be supported strongly by the demand for foreign locators.

Data from the Bangko Sentral ng Pilipinas show that direct foreign investments are building up at  the real estate sector. This in turn is supporting the strong construction growth. These are signs that beyond the BPOs, foreign locators are building base.

The Japanese have finally put substantial investments here in 2012. Canon, Brothers and Bandai are among the big ones that have already established based here, particularly in economic processing zones in Batangas province. Substantial investments are also seen in the wholesale and retail sectors, both buoyant when economies like ours are in an upswing.

The low interest rate regime will remain especially as inflation continues to hover about three percent. It also helps that the government is making good in its finances and have no need to borrow heavily.  With excess cash, the much vaunted PPP (public-private partnership) projects and large infrastructure projects can easily be put online this year.

All of these will be buoyed further by the much awaited confirmation of an investment grade within this year’s first six months! In addition, election spending could help boost local demand.

Despite these good and positive expectations, there remain challenges. Firstly, the strong confidence in the economy is bringing in unprecedented foreign exchange inflows from all sides —direct investments, portfolio investments, overseas remittances, and tourism and BPO incomes. This has made the peso appreciate faster, and this could potentially erode the confidence and competitiveness we are enjoying. The BSP is surely doing a good job of ensuring that the inflows will shift the direction of inflation and interest rates. They will most likely see a small room to have more easing if the peso continues its appreciation.

Secondly, the sectors that are benefiting from our current growth are not directly linked to where large number of unemployed is, like in rural areas. Hence, it will take a bit of time before many Filipinos benefit, particularly those in the agricultural sector. Nonetheless, agriculture has already shown resiliency amidst natural calamities, signifying that productivity is improving in this sector.

Overall, 2013 is the go ahead year for the Philippine economy! On a sectoral basis, the building blocks for setting base should be the sectors that will go overdrive: supported by tourism, the BPO sector and overseas remittances as internal strength. Investment wise, equities will continue to dominate especially as many listed firms are in the overdrive sectors. Fixed rate investments will remain slow. This is actually the best time to borrow for housing. It will be a good time to  renegotiate loans and debts.

Finally, we have to believe what we are seeing. I choose not to doubt the sustainability of this growth. This is something that we have desired to happen in the past. Answered prayer indeed!#