It was a rough start for 2016. A fall in China’s currency, the renminbi, in the first few days of the year startled markets and led to volatility worldwide. China’s economic slowdown weakened commodity prices, particularly that of oil, which has fallen below $30 a barrel for the first time in 12 years. Higher interest rates in the United States frightened emerging markets, which now see an outflow of “hot money.” In the European Union, the refugee crisis is putting pressure on the stability of the region’s economy.
The Philippines, on the other hand, seems to be an exception. The prognosis of foreign analysts and economists is the same: The Philippines will be among the few bright spots in the global economy this year.
Last week, American banking giant Citigroup and Dutch financial conglomerate ING Bank upgraded their Philippine economic growth forecasts for this year and next, both citing the stronger-than-expected output in the fourth quarter of 2015. Citigroup raised its gross domestic product growth estimate for the country this year to 5.4 percent from 5.1 percent. For 2017, Citi’s GDP growth forecast was also upgraded to 6 percent from 5.5 percent. ING, on the other hand, raised its 2016 growth forecast for the Philippines to 6.2 percent from 6 percent previously on expectations that domestic investments will further expand. Citi expected domestic demand to grow by 7.4 percent year-on-year in the first quarter, although this was seen to ease to below 5 percent in the fourth quarter.
Investments will help fuel growth in 2016, according to their analyses, citing contributions from ongoing infrastructure projects under the public-private partnership framework as well as other energy, infrastructure and real estate projects. “Domestic demand is likely to continue to power 2016 growth considering that the momentum of 2015’s robust performance of government spending and infrastructure boost would continue in 2016, while election spending delivers additional lift to economic activity,” ING Bank Manila senior economist Joey Cuyegkeng predicted.
Fears about the economic impact of the prolonged drought caused by El Niño are deemed exaggerated. Economists say that strong government spending and infrastructure investments will more than offset the drag that El Niño will cause on agriculture. This is supported by the fact that, through the years, the share of agriculture in the total economy has shrunk.
The message is this: El Niño will doubtless have an impact on the agricultural sector, but the adverse effects will not be sufficient to drag the entire economy lower. Former economic planning secretary Arsenio Balisacan noted earlier that agriculture is now just a small component of the economy. As of 2014, the farm sector was responsible for a little more than a tenth of GDP, or down from a fifth 30 years ago. Times have changed. Today, the economy is fueled by the BPO (business process outsourcing) industry, financial services and industry. Then there are the 10 million overseas Filipinos who send more than $2 billion a month to their families here, driving economic consumption.
El Niño, a warming of sea-surface temperatures in the Pacific Ocean, has triggered a drought in the Philippines, affecting supply of agricultural produce. Mindanao is the most affected among the islands. But Mindanao’s contribution to GDP is just about 15 percent. This is not to say that Mindanao plays an insignificant role in the economy.
Balisacan earlier predicted that Mindanao, the country’s second biggest island group, could help push the country above an 8-percent GDP growth given its development potential in agriculture, tourism and industries. This is also not to belittle the social impact of the drought as it is expected to be huge. Despite the minimal effects on GDP of the current drought, its impact on the social sector cannot be ignored as one in three Philippine households is in agricultural areas.
From an economic standpoint, the Philippines need not worry about sustaining its growth this year. The only possible threat to this rather rosy outlook is a failure of elections in May that, in turn, could trigger a political crisis. The government and the private sector should ensure that the elections will be peaceful and credible. Otherwise, it will definitely be a disaster.