A surprise surge in the Philippine economy has put its pace of expansion ahead of neighboring giant China.
The Philippine economy grew by 7.8% in the first three months of 2013, beating every single analyst estimate and putting it above China as Asias fastest-growing major economies. The torrid growth, the best in nearly three years, defied a regional slowdown as President Benigno Aquino boosted investment and state spending. Among other Asian economies, China and Indonesia attained 7.7% and 6% growth respectively.
News of an unexpected upbeat GDP growth stunned investors and sent the Peso up 0.2% higher at 42.325 per dollar. Domestic demand in the Philippines is very resilient in the face of slowing growth regionally, said Trinh Nguyen, Hong Kong-based economist at HSBC Holdings Plc. Government spending surprised on the upside, raising optimism that investment in the country is picking up.
Bucking the trend of regional weakness - with neighboring countries such as Malaysia and Thailand recently reported disappointing growth figures, the Philippines is now the shining star of the region. This print is comfortably the fastest first-quarter GDP growth print across Asia, Michael Wan, economist at Credit Suisse, wrote. It is heartening to note that the quality of growth was also good, in that investment is becoming a much more important driver of growth, in a country where infrastructure spending still lags behind its peers in the region, Wan said.
It was the first time since Q1 1994 the Philippine quarterly economic growth has outpaced China, according to Bloomberg data. In yearly term, the Southeast Asian nations full-year growth last exceeded China in 1989, IMF data showed. There is a lot of expectations at the moment and the nation is moving at a new growth trajectory, economic planning secretary Arsenio Balisacan said at a briefing in Manila.
Growth was robust on multiple fronts. Strong domestic consumption, fueled by remittances from around 10 million overseas Filipino workers, drove enthusiastic private sector expenditure on equipment and buildings, which jumped 47.7% year-on-year, up from a mere 9.5% from previous period. Meanwhile, public spending on construction climbed 45.6% as the government hiked up efforts to renovate dilapidated schools, roads and bridges.
The Philippines, like Thailand, is pursuing a massive infrastructure spending program worth around $10 billion. It covers a wide range of investments, from power plants and bridges to roads and schools. The program has already created more than 400,000 jobs and helped win an investment grading from rating agencies, opening up the country to more international money.
Borrowing costs have come down for the government after both Fitch and Standard and Poors raised the credit rating for Filipino bonds to investment grade earlier this year. Business confidence and optimism fueled this growth, said the economic planning secretary Balisacan, who added that the government hopes to achieve 7 to 8% annual growth by 2016. If we continue growing at this stage in the next 10 or 15 years, we will be in a situation where Thailand is. Per capita income in the Philippines is now around half of Thailand and about a-quarter that of Malaysia.
The Philippines - Asia’s new economic tiger?
President Aquino, who was swept into power three years ago on promises to crack down on corruption and cut poverty, won control of the Congress this month, easing the path for further reforms in the second half of his term. One of his main challenges will be to tackle the island archipelagos high unemployment rate, which at 7.1% shows no signs of easing in the short term as job creation struggles to keep pace with a booming population.
Furthermore, the poorest and least skilled remain excluded from the highest growth sectors, such as call center outsourcing. Balisacan said that the government understood that for growth to be inclusive, the poor must be linked to the growth industries. The faster this can be done, the better it will be for the greater number of our people, he said.
Finance Secretary Cesar Purisima said the results showed the Philippines could expect sustained growth. The Philippines now looks upon an open sky of possibility, as we continue to free ourselves from the limiting mentalities that have held us back in the past, he said. Economists however, warned that one of the worst traits of the Philippine economy is a huge and growing rich-poor divide, with a few number of families and companies swallowing up most of the benefits of growth.
Despite the GDP growth report, the National Statistical Coordination Board said the state of poverty in the country remains unchanged. Secretary General Jose Ramon Albert in his April report said poverty incidence among population was estimated at 27.9% during the first semester of 2012. At 7.1% the country also have the highest unemployment rate in Southeast Asia.
At least 2.76 million Filipinos are unemployed. And many of those who are employed have salaries that are way below the estimated median family living wage of P1,022 a month. What is ironic is that we have vast resources where enough jobs and livelihood can be generated, he added.
The ethnic Chinese, making up 1.6% of the Philippine population, are estimated to control 62% of the economy. As the Southeast Asian state emerges as Asias newest economic star, their fortune are likewise on the rise. Henry Sy Zhi Cheng, the countrys wealthiest man, is now worth $13.2 billion - up from $2.2 billion a decade ago. His SM Prime is the Philippine top retailer, while his Banco de Oro (BDO) its biggest bank. Sys SM Group is the largest conglomerate in the islands.
Lucio Tan Yong Zai, the countrys second richest man, owns more than 300 companies - spanning from agribusiness, banking, finance, brewery, chemicals, distillery and alcohol, education, food, hotel, manufacturing, property development, steel fabrication and construction, to tourism and travel services. Just the 2 men alone; Tans LT Group, together with Sys SM Group, single-handedly account for 3% of the Philippine GDP.
Other prominent Filipino businessmen include Andrew Tan of Alliance Global Group, George Ty of Metrobank, Lucio Co of PureGold and Tony Tan of Jolibee Foods. Among the 11 billionaires listed in Forbes Philippines 2013, 10 of them are of Chinese ancestry.
During the 1950s, the Philippines was the largest economy in Southeast Asia, and the second in Asia only after Japan. The economy suffered a great decline under the Marcos regime which ruled the country from 1965 to 1986, and whom borrowed so much money from international lenders that in 1986, the Philippines became one of the most indebted countries in Asia. A sizable amount of this money went to Marcos family and friends in the form of behest loans. Through corruption, nepotism and embezzlement, the Philippines descended from an economic powerhouse into a poor, poverty-stricken state today.
The Marcos family and cronies looted such a great amount of wealth from the country that the Filipino economy collapsed in 1984, and it wasnt until 2003 before the economy can be put back on track. In 2010, Benigno Aquino III became the President of Philippines, who then waved war against corruption and enacted a series of economic development and reform programs in hope to bring back the past glories of his country.