The Philippine economy is holding up despite global challenges and the unpredictable political risk created by President Rodrigo Duterte.
The economy expanded 6.6 percent in the fourth quarter of 2016, bringing the full-year gross domestic product growth to 6.8 percent, probably the second-fastest in Asia after India’s.
HSBC Holdings Plc in Hong Kong described the Philippine performance as a transformation to a “stronger, more developed economy,” adding that previous administrations “worked hard to ensure macroeconomic stability which serves as its anchor.”
The 6.8-percent growth in 2016 was the fastest since the 7.1-percent expansion in 2013, and was within the government’s target of 6 percent to 7 percent for the year. It was faster than China’s 6.8 percent and Vietnam’s 6.2 percent and would likely be second behind India’s over 7-percent growth.
The GDP numbers are impressive. Household spending, which makes up about 70 percent of GDP, rose 6.3 percent from a year earlier. Government spending gained 4 percent, services increased 7.4 percent, industrial production rose 7.6 percent, while investment surged 15 percent.
A low-inflation and -interest rate regime and strong inflows from the business process outsourcing sector and tourism and remittances from migrant Filipino workers are fueling domestic consumption in the economy.
Revenue reforms that started with the imposition of a higher value-added tax during the administration of former President Gloria Macapagal-Arroyo and the investor-friendly atmosphere fostered by ex-President Benigno Aquino III are paying off for the economy.
The government of President Duterte, meanwhile, will have to craft its own tax-reform agenda to fund an ambitious $160-billion infrastructure program to sustain economic growth. President Duterte should focus more on the economic agenda. It’s the only way to reduce the widespread poverty incidence in the Philippines, generate more employment and expand social services.
A strong economy can also keep the Philippines safe from the dangers of trade protectionism being espoused by the United States and the United Kingdom.