Seven growth drivers in 2014

Will the economy grow as fast or even faster this year compared to last year’s brisk 7.2 percent? Official first quarter economic growth figures will be released next week, and many watch the numbers as a guide for firming up business plans for the rest of the year and beyond. I see at least seven reasons why overall economic growth would remain brisk, and even possibly outpace last year’s rate.

First, I see no letup in the resurgence in manufacturing activity that we’ve been witnessing in the last four years. It is remarkable that while annual manufacturing growth averaged a sluggish 3 percent in 2004-2009, it has averaged 8.1 percent since 2010, and ended 2013 with a double-digit growth rate of 10.5 percent. Partly behind this is increased relocation of manufacturing operations out of China and into the country by both Filipino and foreign industrialists reeling under tightening labor supplies and rapidly rising wages. Indeed, it is now often said that China is losing its status as the “factory of the world.” There is also much anecdotal evidence of heightened manufacturing investments and expansions, especially in special economic zones (SEZs) around the country. I have heard some administrators of such SEZs attest to much-increased numbers of new investment locators compared to what they had seen in the past decade. And yet we haven’t even succeeded in matching the annual flows of foreign investments that our Asean neighbors have traditionally attracted. What more, then, if we are able to bring down the traditional impediments to greater foreign investor interest in our economy.

Second, major infrastructure projects are coming on-stream, including the long-awaited public-private partnership (PPP) projects that have taken a long time to move from inception to execution. Government expects to complete seven PPP projects, costing a total of P50 billion, by 2016. The PPP Center reports that 50 projects have been lined up, even as government agencies are identifying even more projects for the pipeline. But the bigger part still comes from direct government-funded projects already in the works, with government aiming to hike overall infrastructure spending to 5 percent of GDP, or a total of about P850 billion, by 2016.

Third, a major boost will come from massive rebuilding in disaster-hit areas in the Visayas and Mindanao. This includes reconstruction, restoration and rehabilitation of both public and private structures and facilities. I’ve written before that past major calamities, instead of leading to a slowdown in economic activity as widely presumed, were actually followed by an uptick in GDP growth, apparently driven by reconstruction, restoration and rehabilitation work. Given the unusual magnitude of destruction that “Yolanda” brought, in the wake of other major disasters—e.g., Typhoon “Pablo” in Mindanao and the Bohol earthquake—the magnitude of needed remedial but GDP-boosting activity is also going to be unusually large.

Fourth, last year’s 7.2-percent growth came even with agriculture growing minimally at 1.1 percent, hobbled by natural disturbances. Such abnormally low growth was particularly disturbing, as it even failed to keep pace with growth in our population, now estimated at 1.7 percent annually. This tells me that all other things equal, simply restoring agricultural growth to the more normal 2-3-percent range—not to mention a possible further boost for reasons mentioned below—would already hike our overall growth this year relative to last year.

Fifth, I anticipate a significant boost this year from investments being made by our production sectors in preparation for the Asean Economic Community, which has become evident in recent data. For example, data on investments in durable equipment show sugar mill machineries standing out with 143.5 and 79.8 percent growth in 2012 and 2013, respectively. I take this as evidence that the industry is gearing up for the heightened competition expected from the impending reduction of the sugar import tariff to 5 percent (from the current 18). Sugar is one of our very few remaining products with exceptional protection under the Asean Free Trade Agreement.

Sixth, overseas remittances will continue to be a prominent driver of our economy’s growth on the spending side, as we’ve seen it sustain a normal annual growth of 6-7 percent over the years since the 2008 global financial crisis. With the improved world economic growth outlook for 2014 and 2015 (projected by the International Monetary Fund to accelerate to 3.6 and 3.9 percent respectively, from last year’s 3.0 percent) remittance growth could potentially accelerate further.

Seventh, the recent signing of the Comprehensive Agreement on the Bangsamoro is unleashing further investor interest in the Autonomous Region in Muslim Mindanao, even as its Regional Board of Investments already reports substantial new investments in recent years. The bulk of these investments will be in agriculture and agribusiness, potentially providing a growth boost to the sector beyond its historical growth performance.

The Philippine Statistics Authority (PSA), the new agency created by Republic Act No. 10625 to unify our major government statistical bodies, tracks 11 variables that appear to be good predictors of economic growth in the near term. According to the PSA, latest trends in these “leading economic indicators” suggest that growth in the first quarter may be somewhat slower. We will know for sure next week. Even so, for the above seven reasons, I believe there is good reason to expect that our economy’s full-year growth could remain above 7 percent this year and next.

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