Philippine economy to grow faster, says think tank

MANILA, Philippines — Regional think tank ASEAN +3 Macroeconomic Research Office (AMRO) sees the Philippine economy growing faster in 2018 and 2019 as exports remain buoyant and domestic consumption accelerates amid the ambitious infrastructure development program.

In a report AMRO said it forecasts the domestic economy growing 6.8 percent in 2018 and 6.9 percent in 2019, both faster than the 6.7 percent pace registered in 2017.

“Amid the softening in private sector demand last year, an ambitious Build Build Build program in public sector infrastructure is expected to lift growth momentum in the near term,” said AMRO.

AMRO said while the first package of the tax reform program would help finance the Build Build Build program, risk pockets to the economy remain because of the inflationary effects brought about by excise tax hikes and other external factors such as higher oil prices and weak exchange rate. 

Headline inflation has already spiked to four percent at the start of the year and is expected to slightly breach the upper end of the government target of two to four percent for this year but AMRO expects inflation to ease back to the target by 2019.

The country’s massive infrastructure program is also confronted with capacity issues and labor supply woes.

“On the domestic front, the economy’s weak implementation capacity poses a constraint to the infrastructure push. Government agencies lack skilled manpower to implement an increasing number of complex projects which would require international expertise. Also, not enough local private contractors have the technical competence, experience and financial capacity to handle the long list of large-scale projects. Moreover, despite abundant labor supply, there is a shortage of skilled labor in specific occupations and industries such as in construction,” AMRO said in the report.

On the external front, AMRO said protectionist policies in the US threaten the growth of remittances and business process outsourcing (BPO). 

“Remittances and BPO revenues face a potential slowdown from US protectionist policies, among other headwinds. The clampdown on undocumented migrants in the US place an estimated 300,000 Filipinos at risk of deportation,” said AMRO.

Reforms to attract foreign investments will help counter external risks and facilitate growth, said AMRO.

“Advancing efforts to improve the country’s business climate and investing in human capital to address the labor mismatch will raise the economy’s absorptive capacity and complement the drive to accelerate infrastructure investment,” said the think tank.