Economy headed for long-term growth – DOF

MANILA, Philippines - The Philippine economy seems headed for long-term growth with the possibility of expanding beyond 7.2 percent even in the absence of election-related spending, the Department of Finance said.

Finance Undersecretary Gil Beltran said the Philippines is seen to pick up more speed in the medium-term given its strong macroeconomic fundamentals.

“The medium-term growth prospects of the economy are sound. The Philippine economy has the capacity to grow faster than the 7.2 percent attained last year with or without the boost from election spending,” Beltran said.

Beltran, who is also the country’s chief economist, said the Philippines’ gross national savings exceed its gross domestic investment by three to six percent of gross domestic product (GDP).

He said that in the last 10 years, surplus savings averaged 3.3 percent using the current account balance in the BOP (balance of payments) as basis. In the first quarter,  it was pegged at 3.1 percent of GDP. 

Using the national income accounts approach, the average excess saving for the last decade is 3.8 percent of GDP. Last year, it was 5.2 percent of GDP.

 “This implies that the Philippines has excess resources to spend to push the economic growth higher. If these savings surpluses were invested in productive activities, the economy would grow by the amount of new investments plus the real rate of return on investment,” Beltran said.

Beltran said increased public spending  on infrastructure would help the Philippines achieve sustainable growth.  The government aims to boost the share of infrastructure spending to GDP to five percent by 2016.

“Regression analysis shows that government infrastructure investment has a real GDP growth elasticity of 1.96 that implies that the economy will grow by almost twice the original amount of investment,” Beltran said.

 “If these trends continue and plans are implemented as targeted, the country would attain the 6.5-7.5 percent  growth target for 2014 and the 7-8 percent growth in 2015,” he added.

Beltran also said that the slowdown of growth to 5.7 percent in the first quarter was just a “short-term phenomenon and should not be seen as a trend.”

He pointed to the manufacturing sector’s return to double-digit growth level  in the first quarter as well as the continued robust investment growth.

Beltran said the lowering of the inflation target would not have any impact on the country’s economic growth.

 “In theory, when growth rises, the supply of goods available in the market also rises. This dampens price levels and in turn, reduces interest rates.  This is the reason why the lowering of the inflation target should not be seen as negative factor for growth. The BSP’s moving from a regime of negative real interest rates to positive real interest rates is more sustainable in the long run; it avoids bubbles and maintains the growth of savings,” Beltran said.