By Denise A. Valdez and Mark T. Amoguis, August 27 2019; Business World
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THE PHILIPPINES can be expected to be among Southeast Asian economies least affected by the escalating Sino-United States trade war due to “stronger fundamentals” — thanks partly to robust construction activity — and “more limited exposure to global trade,” according to a note of Australia-based BIS Oxford Economics.
In its Aug. 22 Asia Construction Service note, titled: “Southeast Asia Construction in the Trade War Firing Line,” economist April Skinner said that while “Asia stands to lose out due to the openness of its economies and direct connections to China… Southeast Asia economies — in particular Vietnam, Indonesia and the Philippines — are expected to hold up relatively well.”
And among the 12 Asian economies monitored for the note, the Philippines stood out with the best overall construction prospects despite having the weakest business environment among them.
“Indonesia, the Philippines and Vietnam are expected to see strong growth in total construction work done, despite uncertainty surrounding the US-China trade war.”
Construction in these three Southeast Asian economies is expected “to accelerate in the near term and average 19% year-on-year over 2019-2023” against an 11% projection for 2019 on the back of “continued strong growth in domestic demand and a healthy pipeline of government-funded infrastructure projects.”
“Indonesia, Philippines and Vietnam top the list of countries in the region for infrastructure spending targets to 2024,” with “strong government investment” in infrastructure in these countries providing “solid growth prospects” for civil engineering work in the next five years.
Civil engineering construction over that period is projected to grow annually by an average of 22% in Indonesia, 20% in the Philippines and 14% in Vietnam.
For 12 Asian economies monitored — China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam — construction activity is projected to increase by just two percent this year, “it’s weakest pace since 2015” and average six percent year-on-year in the next five years, well below “historical average.” For the entire Southeast Asia, such activity is projected to grow by seven percent this year and 15% year-on-year over the next five years.
Last week, US President Donald Trump increased tariffs on $550 billion worth of Chinese products, in a counterattack for China’s earlier announcement that it would impose new tariffs on $75 billion worth of US goods.
A table in the note that ranked each of the 12 economies in terms of “construction prospects given current economic environment” showed the Philippines topping the list.
By factor, the Philippines bested the rest in terms of “vulnerability to the near-term downturn in trade” by having the least exposure in this regard, ranked second in terms of “infrastructure pipeline” (in which Indonesia was first) and “demographics” (Malaysia topped the list), fourth in terms of “domestic demand” (India topped in this factor) but last in terms of “business environment” (in which Singapore was first).
“Those countries with robust population growth and the potential for continued economic development will see most activity in both the building and civil engineering construction sectors,” the note read.
“Governments across the region can use infrastructure spending to offset a slowdown in private sector activity… [I]nfrastructure programs already being rolled out… will be able to weather the storm and are expected to be key parts of expansionary fiscal policy designed to combat the downturn in global growth momentum.”
GDP TARGET STILL IN SIGHT
Meanwhile, Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said during an event in Manila on Aug. 16 that the country’s economy still stands a chance of hitting the government’s already tempered 6-7% gross domestic product growth target this year, despite a muted 5.5% pace last semester which he called a “blip.”
“… I can assure you that we are going to forge ahead… I’m optimistic we’ll hit at least six percent this year and 6.5-7.5% next year and 7-8% in the last two years of the Duterte administration,” Mr. Diokno said.
“So, the Philippines, even without the temporary blip [in the] last two quarters, is still one of the fastest growing in the region and in the world,” he added, referring to the 5.6% and 5.5% GDP growth rates in the first and second quarters, respectively.
State economic managers and private economists blamed the four-month delay in enactment of this year’s P3.662-trillion national budget — which left new infrastructure projects unfunded for much of last semester — as well as the 45-day ban on public works ahead of the May 13 midterm elections for the economy’s disappointing performance.
Socioeconomic Planning Secretary Erneso M. Pernia has said GDP would have to grow by 6.4% this semester to hit the low end of the government’s full-year goal.
“Right now we’re facing headwinds externally. There’s the US-China trade war, there’s now increasing consensus that US will enter a recession, Germany is already in recession, UK is in recession,” Mr. Diokno said.
But, he added, “the Philippine economy is fine… Our last two quarters we hit a bump, but… it’s not a reflection of how strong the Philippine economy is.” — Denise A. Valdez and Mark T. Amoguis