THE Philippines is seen attracting larger chunks of foreign direct investments (FDI) over the near term, as the country’s working- age population becomes increasingly more productive and consumption activities accelerate, global financial- services giant HSBC said.
Favorable demographics, one in which the most number of Filipinos contribute the most to local output, measured as the gross domestic product (GDP), should continue to boost domestic demand and attract even more investments for the $270-billion economy, looking to grow as high as 7.5 percent this year.
But at the same time, the British-owned lender warned of dark economic clouds in the form of poor infrastructure and employment issues acting as dampener on sustained high consumption activities in the country. Consumption accounts for more or less 70 percent of the economy and fed for the most part by the foreign currency earnings of some 10 million overseas Filipinos.
At a recent HSBC-sponsored briefing, HSBC economist Trinh Nguyen said the Philippines should reap handsome rewards from its young population in the form of robust domestic demand that will, in turn, help attract greater amounts of foreign investments down the line.
Nguyen looked ahead to the Philippines becoming a haven for “consumption-oriented” investments as other country destinations like Japan, for instance, begin reporting emasculated domestic demand as its population continues to age.
“As demand in Japan decline, as its population gets older, they will look for places like the Philippines because what the Philippines has is rising demand” Nguyen said.
“Not only that, the demographic profile of the Philippines will shift from high dependency to a more even-out shape. That is, you have more workers and less dependents. This is why the Philippines see its FDI [foreign direct investments] rising, we see more consumption-oriented firms try to look into the Philippines,” Nguyen added.
Consumption spending in the Philippines reached an all-time high of P1.2 trillion in the first three months of the year, the same having averaged only around P858 billion the past six years, based on central bank data.
The HSBC economist said favorable demographics, among other factors, are concrete reasons to be “bullish” on the Philippine economy no matter the certainty of higher interest rates both locally and abroad over the medium horizon.
“We believe that the Philippines is destined for a bright future ahead. In fact, in the past few years, we saw a lot of progress. And if the demographic transition is capitalized well, the Philippines will be a bright star in Asia,” Nguyen said.
Nguyen also said that while the low level of household debt in the Philippines portray households lacking full access to credit, the same provides a level of comfort for when the cost of money rises dramatically over time.
“Household debt in the Philippines is only 6 percent of GDP, the lowest in Asia, and that means when interest rates rise, the higher interest expenses [should] not hurt Filipinos as much,” Nguyen said of an aggregate pertaining to home mortgages, credit-card debt, as well as car loans that provide a snapshot of the consumption activities going on in a typical Filipino household. The New York-based sovereign credit watcher Moody’s Investor Service earlier said the country’s poor showing in household debt is attributable in part to the low level of bank penetration as lenders tend to congregate in urbanized areas in the country.
Nguyen reiterated HSBC’s observation that the deceleration in local output in the first quarter was indicative of an economy showing signs of fatigue.
Nguyen also said there is a need for the country to boost employment and pursue the buildup of infrastructure to prevent prices from spilling over the anticipated inflation path this year.
“The Philippines’s growth trend actually increased from 5 percent to 5.5 percent and there is a need for an increase in employment and supply structures such as infrastructure, electricity and food,” Nguyen said,
“These can push prices higher,” the economist added.
Inflation did rise and averaged 4.9 percent in July this year, the highest in three years, based on official data.
Written by: Bianca Cuaresma