MANILA, Philippines – Despite the impact of the devastation brought about by Super Typhoon Yolanda, the international investor community remains bullish on the growth prospects of the Philippines, Standard Chartered Bank said in its latest research note.
“Optimism about the Philippine economy remains strong. International sentiment towards the Philippines has improved, particularly in 2013. Investment is becoming a growth engine, albeit at a slow pace,” it said.
However, it said expectations on the peso-dollar exhange rate are more divided.
StanChart said investors also expect inflation to rise but still within the central bank’s target zone in 2014.
“As early as Q1 2013, domestic and international investors had priced in the stronger economic performance seen since 2012 and the Philippines’ ability to achieve an investment-grade credit rating. Since March 2009, business sentiment for the next quarter has been generally optimistic, though the recent typhoon disaster did affect it to some degree in the latest survey. The Philippines has also climbed international rankings. It ranked 108 in the Ease of Doing Business in 2014, from 133 a year ago,” it said.
It singled out the Philippines as one of the economies that made significant improvements, particularly in “dealing with construction permits”, “getting credit” and “paying taxes”.
StanChart said the Philippines has also made some progress in improving investment-driven growth.
“We note that investment growth has contributed at least 1.5 percentage point to GDP growth over the past seven quarters, providing the economy with a secondary growth driver. This has been supplemented by strong durable equipment growth, showing that the Philippines is investing in future productive capacity,” it said.
But it said while progress has been made, the Philippines has a relatively low investment-to-GDP ratio compared with other Southeast Asian economies (20.2 percent in 2013 versus 19.4 percent in 2012).
“This will need to be driven higher by both domestic and external sources – we note that in 2013 that the Philippines remained dependent on domestic investment. The increase in investment growth needs to be sustained in order for the economy to benefit in the long term,” it pointed out.
StanChart said it expects the Philippines’ investment story to benefit from certain trends this year.
“It is likely that better global growth will support stronger FDI growth in the Philippines. Historically, Japan and the US have been big investors in the Philippines; we think this has further upside potential. In addition, higher labor costs in China have driven production chains towards Southeast Asia, including the Philippines, where labor costs are lower. With an English-speaking population and a sizable labor force, it is likely that the Philippines has the excess capacity to benefit from these trends in 2014,” it said.