StanChart sees Phl GDP growing 6% on higher consumption, employment

MANILA, Philippines - The Philippine economy could potentially expand by six percent this year, as private consumption increases and employment continues to improve, a leading foreign bank said.

Standard Chartered Bank said in a report the unemployment rate, which currently stands at six percent, has been declining over the past five years. It has dropped two percentage points since the first semester of 2010 as more people enter full-time employment.

“We expect underemployment, which is prevalent in regions where the agricultural sector dominates, to drop as the economy shifts more towards manufacturing and services,” the StanChart report said.

In turn, increased employment and the decrease in underemployment would lead to an increase in private consumption.

The bank said it expects the manufacturing and business services sectors to boost domestic employment as they account for only 8.1 percent and 3.3 percent of total employment, respectively.

The labor market has improved since 2010. The unemployment rate fell to a new low of six percent in the last three months of 2014 from a peak of eight percent in 2010.

Furthermore, the percentage of the workforce in full-time employment – those not counted in the underemployed or unemployed categories – was at its highest since 2008.

“We expect the gradual shift towards full-time employment to keep private consumption growth resilient,” StanChart said.

Employment growth has typically lagged GDP growth in recent years.

This is a concern given significant spare labor capacity. In 2014, 22 million Filipinos or almost 53 percent of the working-age population were not counted as part of the labor force, and a further three million were unemployed.

StanChart report said wage growth will be another important factor influencing consumption.

Average daily basic pay has increased 27 percent since 2009, less than the 58-percent increase in nominal GDP over the period. A breakdown of wages by industry shows that wages in the services sector are higher than in the agricultural and manufacturing sectors.

As the Philippine economy becomes more services-oriented, a larger number of workers will experience wage growth. Moving up the value chain in the manufacturing sector and improving productivity levels should be positive for wage growth in the sector.

Remittances, which may account for more than seven percent of GDP, remains important to the economy. But it is also expected to make only a small contribution to future domestic consumption growth. Real remittance growth has slowed in recent years, providing less support to real consumption and GDP growth.

At the same time, better employment opportunities may prompt more overseas Filipinos to return home, compensating for slowing remittance growth.