Goldman Sachs sees growth up to 6% till 2016

US-based investment banking firm Goldman Sachs sees Philippine output hitting as much as 6 percent annually until 2016, but higher growth is possible should the government focus on upgrading the skills of the local labor force. “Our growth projection is at 5.5- to 6-percent growth for the Philippines over the medium term.  We are looking at 6-percent growth more or less in the coming years until 2016,” Mark Tan, Goldman Sachs economist for Southeast Asia, told local journalists in a press round table on Thursday. “This is an above-trend pace over the coming years, actually, because last year there was a big effect in terms of coming from a low base,” he added, noting that the government reported Thursday morning that gross domestic product (GDP) growth hit 6.6 percent in 2012. Tan said key growth drivers for the coming years are the continued push on infrastructure spending and robust consumption on the back of strong credit growth.   The Aquino administration has said infrastructure will finally be boosted by the much-trumpeted public-private partnership (PPP) program, following delays in project roll out in the past two years. According to data from the Bangko Sentral ng Pilipinas, bank lending has been growing by double digits for at least two years on the back of ample liquidity. Goldman Sachs' projection, however, is way below the government’s growth goal. The interagency, policy-setting Development Budget Coordination Committee (DBCC) has targeted GDP growth at 6 to 7 percent in 2013; 6.5 to 7.5 percent in 2014; 7 to 8 percent in 2015; and 7.5 to 8.5 percent in 2016. Asked if hitting growth at around 8 percent by the end of the current administration is possible, Tan said, “An increase to around 8 percent, well, that would entail a couple of things.” Tan noted that the government needs to focus on improving education in order to propel Philippine industries up the value chain. “The focus should be on upgrading skills, human capital, which will result in upward movement in the value chain. This is the huge part of achieving that; education is key,” he said. Philippines not overheating The Goldman Sachs economist, meanwhile, brushed off concerns that the Philippine economy is in danger of overheating. “Obviously, the strong growth could be absorbed,” he said, citing “healthy” credit growth of around 6 percent and the need to roll-out big ticket infrastructure projects to address gaps. Tan also noted that policy rates remain accommodative to any future tightening to address potential overheating.    Goldman Sachs sees the BSP keeping policy rates at record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending. “But we see 50 bps [basis points] hike in early 2014 to prevent any potential overheating that may occur,” Tan said. Peso seen at 37:$1 by year-end With the country’s growth attracting capital flows both fundamental and speculative, Goldman Sachs expects the peso to hit 37.5 to a dollar by year-end. “We do forecast a 37.5 exchange rate in 2013 on continued inflows in this part of the world,” Tan said, noting that foreign direct investment and overseas remittance inflows as well as healthy balance of payments have provided a springboard for the peso's strength. Despite a weak dollar being potentially hurtful to sectors that earn in dollars like overseas Filipinos and exporters, Tan said Goldman Sachs has a “weak US dollar view for the next few years.” “There will be continued appreciation for the whole Asian countries,” he noted. “The main worry, obviously, for the central bank is how to deal with [foreign exchange] volatility.” Tan said the Bangko Sentral may employ macroprudential measures to curb speculative inflows. Monetary authorities have so far employed measures limiting investments in Special Deposit Accounts and raising capital requirement for banks to position foreign exchange forwards. — BM, GMA News