PHL needs sustained reforms to support growth, says Goldman Sachs

The economy will stay robust this year, but sustained structural reforms attracting much-needed investments could propel the country toward a better growth trajectory, officials of investment bank Goldman Sachs said Thursday. 

 

The American company retained its view that the Philippines' gross domestic product (GDP) could settle at 5.5 percent in the first quarter, as well as for the full year of 2013. 

 

Despite a marked slowdown from last year’s 6.6-percent economic expansion, “the 5.5-percent projection is still a strong, pretty good outcome and by no means a poor performance,” said Mark Tan, executive director at Goldman Sachs’ Global Investment Research. 

 

The “deceleration in growth momentum” is due to waning base effects, he said, noting that last year’s stellar output came after a slump in 2011. 

 

This year, “domestic demand buoyed by remittances and government spending coupled with exports' beginning to stabilize” are the growth drivers, Tan noted. 

 

The Goldman Sachs forecast is below the Development Budget Coordination Committee’s target of 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.   

 

Better infrastructure and labor skills to attract more foreign direct investments (FDI) are keys to inducing growth output, Tan said. “FDIs here are outrageously low – an increase in this would affect the growth forecast,” said Goldman Sachs managing director for global investment research Christopher Eoyang. 

 

Investments that create jobs more than doubled to $436 million in February, pushing the FDI tally for the first two months at $1.012 billion. 

 

This, however, was an 18.7-percent decline from $1.245 billion in January to February 2012, and well below the country's Southeast Asian peers. 

 

A “good economic story” has stoked investor interest in the world’s new darling, but they remain wary of the sustainability of gains made so far. Eoyang said investor interest is high on the Philippines amid recent gains, but a huge question mark remains over inconsistent implementation.

 

“The game changer is the administration changed, and many things are getting done,” he said. “We get a lot of inquiries from investors in the Philippines. There is interest, but their main concern is sustainability,” Eoyang noted. 

 

“Historically, regime changes do matter here. And we hope to see some consistency in reforms,” he added. 

 

Robust growth will fan inflation to 4.2 percent this year from 3.2 percent in 2012, a development that would compel the Bangko Sentral ng Pilipinas to raise benchmark interest rates by 50 basis points in the first quarter next year.

 

“Inflation will pick up. As such, we maintain the view that the central bank will hike policy rates by 50 basis points in the first quarter 2014,” said Tan. 

 

Inflation last April was at its slowest in 13 months at 2.6 percent, pulling the year-to-date average at 3.0 percent or just under the central bank's 3.2-percent forecast and at the lower end of its 3 to 5 percent target for the year.

 

Benign inflation gave monetary authorities enough leeway to keep policy at an expansionary stance.  

 

The Bangko Sentral has kept policy rates—the benchmark for bank loans—at 3.5 percent for overnight borrowing and 5.5 percent for overnight lending since October last year. — VS, GMA News