Bernardo M. Villegas
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Bullish Growth Prospects

          Modesty aside, I am glad that some government and IMF officials agree with me that GDP growth this year can still be at 7% or above, despite the fact that many international economists have saying that our growth will slow down to 4.5 to 5.0%.  I am no longer the only "prophet of boom" around.  The abundance of local funding, with our savings rate having gone up to 28% or more while investment is still at 17-18% of GDP, has encouraged many local investors to implement billions of pesos worth of projects in real estate and housing, energy, infrastructures, public utilities, tourism, and agribusiness.  These local investors are not waiting for the Government to come out with feasibility studies that will jump start the Public Private Partnership (PPP) programs that the Aquino Administration is counting on. Most of these big-ticket PPP projects will see fruition only in 2012 and 2013.  Meanwhile, the engine of growth for 2011 will be investments that will be financed by the local banks that are awash with money. Fortunately, interest rates have risen only very slightly, despite the higher inflation that may exceed 5% for the whole year.

          The high growth in consumer spending in 2010 has encouraged many local businesses--both big and small--to expand their production facilities.  Such a trend is very obvious in the construction of low-cost and medium-cost housing for middle-income families, not only in the Metro Manila area, but also in such other urban areas as Cebu, Davao, Cagayan de Oro, Iloilo, Dagupan and Angeles City.  Housing and construction will continue to be the engine of growth this year.  The double-digit growth in the revenues of BPO facilities has also stimulated the construction of office buildings in practically all the urban areas that have been attracting BPO companies, including smaller cities like Baguio, Dumaguete, Bacolod, and Naga.  Since double-digit growth is forecasted for at least the next five years in the BPO industry, the impact on real estate and construction will be sustained.

          The focus of the Department of Public Works and Highways on countryside or rural infrastructure will bring economic growth to the rural poor.  More farm-to-market roads, irrigation systems, and other rural infrastructures are encouraging small farmers to diversify into higher-value crops such as fruits and vegetables which will add higher incomes.  The sustained growth of about 7% in the remittances of OFWs will also pump more purchasing power into the rural areas where most of the relatives of the OFWs reside.  In fact, this source of income for Philippine households may be the only real source of increased consumption since political spending and pump priming from the government will be absent this year.

          Exports are expected to slow down this year.  Because of the problems encountered by Japan after the triple whammy of an earthquake, a tsunami and nuclear meltdown, Philippine exports may grow only by single-digit rates compared to the more than 30% increase in 2010.  The very slow recovery in the EU and the US does not help.  Even if we have been increasing our exports to our neighboring countries like China in the last few years, many of these exports like car parts and electronic components are actually assembled in these countries for final shipment to the U.S. or Japan.  The Philippines has not decoupled from these developed countries.   The consoling fact is that exports account for less than one-third of our GDP.  Higher rates of investments can counteract the slowdown in exports.

          What is also encouraging is that many members of the House of Representatives are contributing their share to the increase in local investments.  I personally know a good number of them who are very active supporting local infrastructure projects like farm-to-market roads, irrigation systems, public markets, school buildings and other public works and social services with their so-called "pork barrels".  Among them are Congress  persons Dennis Socrates of Puerto Princesa, Rodolfo Valencia of Oriental Mindoro, Art Defensor of Iloilo, Sonny Angara of Aurora, and Josie Limkatchiong of Negros Oriental. I am sure there many others who are pouring funds into local infrastructures.  This trend in investments in regional public works will intensify after DILG Secretary Jesse Robredo recently issued an order to heads of LGUs to submit inventories of road in their respective jurisdictions to enable the Government to help improve and repair local street networks.  Financing will be taken from the Special Local Road Fund (SLRF).

          A significant rise in investments from all the sources described above will more than compensate for the slow down in consumption and exports.  Rising prices of oil and food products will cause consumers to be more cautious in spending. We won't see a consumer-led recovery for at least the next twelve to eighteen months.  GDP growth fueled by investments--as has been happening in China over the last twenty years--is more sustainable.  Several years from now, people will remember 2010-2011 as the beginning of sustained growth of 7 to 9% in GDP for at least the next two decades.  We will deserve to be called a real emerging market, following the paths taken by China and India over the last decade or so.  Like these two giant economies, a large population will be a distinct advantage for the Philippines to grow without being overly dependent on exports in a global economy under constant threat of a recession. For comments, my email address is bvillegas@uap.edu.ph.