Economy on solid ground

But half the people still live on less than P100 a day.

By PAUL ICAMINA

SOLID economic growth is luring the money in.
“Foreign direct investments are picking up,” says the Asian Development Bank (ADB) in a new major report that upgraded its economic forecast for the Philippines.
Filipinos working abroad continue to pour in the dollars, fueling consumer spending, said the report released this week.
The unemployment rate fell because of call centers but 43 million Filipinos – or half the country – still live on less than P100 a day.
Inflation will be down in 2007 and 2008 on the back of what the ADB calls “solid economic growth” observed in the first six months of 2007.
“The government’s success in taming inflation and reining in fiscal deficit have improved the business environment, but companies feel that more needs to be done to strengthen infrastructure and reduce costs of complying with regulations,” says the Asian Development Outlook 2007.
The flagship economic report looks at exports in nine economies over the past 25 years: in China, Hong Kong, Indonesia, South Korea, Malaysia, Philippines, Singapore, Taipei and Thailand.
There are signs that foreign direct investment is starting to pick up in the Philippines. Major commitments have been made by a Korean ship-building company, a glass manufacturer in China, and a semiconductor company based in the United States.
A modest $1.2 billion boosted net foreign direct investment by 16% in the first half of 2007.
The ADB now forecasts the Philippine economy to grow at 6.6% in 2007 and 6.0% in 2008 – up from earlier forecasts of 5.4% and 5.7% respectively.
The economy expanded by 7.3% in the first half of 2007 – from 5.6% in the first half of 2006.
“The surge in growth is being driven by vigorous private consumption, higher government expenditure and a jump in net exports,” the ADB says.
The rise in consumer spending, which makes up more than three-quarters of the Gross Domestic Product (GDP), has been fueled by the increasing dollars sent by overseas workers –$7 billion in remittances, or a rise of 18%.
In the first half of 2007, government expenditure and private construction were boosted by accelerated spending ahead of elections and reconstruction activities in typhoon-damaged areas.
The unemployment rate fell to 7.4% in April 2007 from 8.2% a year earlier, backed by continuing expansion in the business process outsourcing industry, popularly known as call centers. It boosted employment from 2,400 to 237,400 between 2000 and 2006 and has potential to grow more.
That would require diversification into higher value medical transcription, back-office processing and digital content.
But unemployment is still “a major challenge” because 43 million people live on less than $2 (that’s P100) a day, the report observes. “And the labor force is increasing by 2% a year.”
Inflation slowed because the impact of the higher value-added tax in 2006 subsided and the peso’s appreciation versus the US dollar helped offset higher import prices.
Next year, the services sector will continue to drive GDP. Overseas remittances will support thriving retail trade, transport, residential real estate and communications services. A slow pick-up in global demand for electronics products will add to export growth.
Because of robust consumption spending, retail expanded. Construction and mining performed well, manufacturing less so.
Imports of fuel and of industrial equipment were flat, and rice imports fell sharply as domestic harvests improved early this year. Thus, the trade deficit for the first half narrowed to $776.1 million from $1.7 billion a year earlier.
This narrower gap and the rise in remittances helped bolster the current account surplus, which rose to $1.8 billion.
Agriculture, which was hit by typhoon damage late in 2006, recovered and grew by 4% in the first half of 2007 – it will improve the rest of the year. Prices of basic food were stable in the first half although the dry weather could put upward pressure in the second. InterNews&Features