I am pleased to present the 2013 Outlook of my friend and comrade, Dr. Alvin P. Ang. Alvin is an established economist and have been one of the active movers of the Philippine Economic Society and the University of Santo Tomas. I often seek Alvin’s counsel especially on matters of the economy. Alvin is not only a well esteemed analysts and professor, he is also an advocate of financial education of the Filipinos.

The 2013 Outlook of Dr. Alvin P. Ang

Last year we said that 2012 is a breakout year for the Philippines.  We were not disappointed.  By the time of this writing, accolades here and there have flooded the world about the revival of the Philippine economy. 2012 indeed is a good year.  We have seen unprecedented levels of growth in the equities market and incredibly low interest rate regime hovering for most of the year.  These happened despite challenges in the global economy – the problems that continue to plague the Eurozone, the threat of the US fiscal cliff, among others. Locally, not even the negative impacts of the successive typhoons and monsoon rains have dampened the improved business climate.  The promise to clean the bureaucracy and change the way of doing things undoubtedly have reached investors as confidence have strengthened.  The passage of administration measures such as the RH Bill and the Sin Tax and the removal of the Chief Justice show the resolve to move beyond the usual.  The preliminary peace agreement in Mindanao also helped assure that peace and order issues will be settled.   We are seeing strong double digit growths in capital formation in the last two years – a pattern observable in the Philippines when confidence in the administration is high and up.  Because of these, GDP for 2012 likely hit 6.5%.  This growth is not a blip unlike 2010 or 2000 which are base effects due to a weak prior year.  It is backed up by confidence, resilience and political will.  For 2013, the economy is on a step up.  At current investment levels, growth can match 6.5% and even up to 7%.  Current growth continues to be sustained by the remittances which year by year continue to increase albeit at a slower pace.  The services sector led by the BPO and Tourism continue to make headways for growth.  Last year, construction, finance, real estate, transportation and communication proved to be the growth factors.  This year, these same sectors will benefit from the large foreign inflows of investments pulling with it local investors.  Communication will push further especially as consumers have shifted from mere texting to using mobile internet – as evidenced by the lower text volumes during the holidays.  Real estate is going to be on the overdrive – the competition for the lower to upper middleclass residential housing and condominiums catering to OFWs, will now be supported strongly by the demand for foreign locators.  Data from the BSP shows that direct foreign investments are building up at the real estate sector.  This in turn is supporting the strong construction growth.  These are signs that beyond the BPOs, foreign locators are building base.  The Japanese have finally put substantial investments here in 2012. Canon, Brothers and Bandai are among the big ones that have already established base.  Substantial investments are also seen in the wholesale and retail sectors which are bouyant when economies are in an upswing.  The low interest rate regime will remain especially as inflation continues to hover about 3%.  It also helps that the government is making good in its finances and have no need to borrow heavily. With excess cash, the much vaunted PPP projects and large infrastructure projects can easily be put online this year.   All of these will be bouyed further by the much awaited confirmation of an investment grade within the 1st half of the year!  In addition, the mid-term elections spending could help boost local demand.

Despite these good and positive expectations, there remain challenges.  First, the strong confidence in the economy is bringing in unprecedented foreign exchange inflows from all sides – direct investments, portfolio investments, remittances, touris and BPO income.  This has made the peso appreciate  faster – this could potentially erode the confidence and competitiveness we are enjoying.   The BSP is surely doing a good job of ensuring that the inflows will shift the direction of inflation and interest rates.  They will most likely see a small room to have more easing if the peso continues its appreciation.  Second, the sectors that are benefiting from the growth are not directly linked to where large number of unemployed are.  Hence, it will take a bit of time before the mass base benefit particularly agriculture.  Nonetheless, agriculture have already shown resiliency amidst natural calamities – signifying that productivity is improving in the sector.

Thus, on an overall perspective, 2013 is the go ahead year for the Philippine economy!  On a sector basis, the building blocks for setting base should be the sectors that will go overdrive – these will be supported by tourism, the BPO sector and remittances as internal strength.  Investment-wise, equities will continue to dominate especially as many listed firms are in the overdrive sectors.  Fixed rate investments will remain slow.  This is actually the best time to borrow for housing.  It will be a good time to renegotiate loans and debts.  Finally, we have to believe what we are seeing. I choose not to doubt the sustainability of this growth.  This is something that we have desired to happen in the past. Answered prayer indeed!

Alvin P. Ang has more than 20 years of professional experience in both public and private sectors.  He started his Economist experience with the National Economic and Development Authority (NEDA) of the Philippines where he developed his skills in Development Planning, Policy Formulation and Analysis.  He also worked in Investment Research and Economic Forecasting with his stints at the Philippine National Bank and All Asia Capital as Chief Corporate Planner and as Economist, respectively.  Within those periods, he has been teaching part-time at the University of Santo Tomas in Manila.  In 1999, he joined the academe as full-time Faculty member after completing his Master in Public Policy at the National University of Singapore as a Scholar of the Singapore Government.  He went on to complete his Ph.D. in Applied Economics at Osaka University in 2006 as a Japanese Government Scholar.  He has published in renowned journals such as the Review of Development Economics, Asia Pacific Social Science Review, among others.  His research fields are in Labor and Development Economics and his research interests include Privatization and Development Finance.  His researches on Remittances and Economic Growth in the Philippines have been widely circulated.  He has also consulted for the World Bank, World Health Organization, the European Union, Asian Development Bank, International Labor Organization and the USAID on policy matters. He recently won the first prize (together with Jeremaiah Opiniano) in the Outstanding Research for Development in the 2011 Global Development Awards (besting 400 entries worldwide)  held in Bogota, Colombia.  He is a lifetime member of the Philippine Economics Society where he currently is Vice President.  He is an advocate of responsible personal finance and has lectured on this topic in many fora.  Presently, he is a Full Professor of Economics at the University of Santo Tomas and Visitor Professor at the Ateneo School of Government.

As I end the 2012 Outlook series, I am proud to feature the views of a highly respected academic and economist from the University of Santo Tomas. I had the privilege to meet and collaborate with Mr. Alvin Ang and I admired his astute grasp on economics. However, more than his brilliance in his field, I admired the heart of Alvin — in the academe and in his desire to make a better life for our brothers and sisters. He is someone who I hope was my teacher in my student years, but its never too late to learn from a brilliant guy who has a heart of gold.

The 2012 Outlook of Alvin P. Ang

Few weeks into 2012, the fluidity of the global and local markets make it difficult to even give a quarterly outlook on the economy and markets. Nonetheless, there are general trends that we could follow and assess their direction through the year. Let me focus on the 3 critical components of the economy.

First, GDP growth. GDP growth for 2011 will likely fall around the 3.5 and 4.% forecast made by agencies and fellow economists. This expected growth is respectable considering that the economy treaded a difficult global scenario brought about by the political problems in the Middle East, the Eurozone debt problems, the tsunami in Japan, lower exports and our own local political concerns. Growth drivers remain to be the components of the service sectors boosted by demand in the tourism, finance, real estate and the BPOs. For 2012, tourism will be on overdrive with expected external demand for Palawan and the direct flights to Kalibo by regional airlines. This industry’s huge forward and backward linkages will spur hotel and leisure activities, apart from travel. With construction taking time, rentals in tourist destinations will surely be boosted. BPOs also continue to expand albeit selectively in highly trained skilled manpower. The flock to quality of BPOs ensure that the threat of US withdrawal will not significantly affect the country. Meanwhile, the local manufacturing sector continues to consolidate due to the China and fellow ASEAN dominance of the global industry. But the Philippines continue to have competitive advantages in the food, beverage, furniture and paper industries. These will continue in 2012. OFW remittances continue to be resilient despite global challenges. Studies have revealed that it is countercyclical to crisis particularly where the OFWs are located. For 2011, it is expected to have reached US$23Bn growing at about 7%. Although this has slowed down from recent years, in absolute numbers it has breached more than 1/3 of total exports. A growth of 5% in 2012 will surely be achievable. These sectors will continue to lead growth for 2012, especially as the country shakes its weak institutional and capacity image abroad. Foreign Direct Investments (FDI) will likely reconsider the country as the transparency and corruption-cleaning of the government take effect. The improvement in the perception of the country’s capacity is a crucial ingredient in ensuring sustainability of growth in the medium to long-term. The investment of the current government in this direction is a step in the right direction. Thus, 2012 growth will most likely better 2011 to between 5 to 5.5%.

For 2012, two critical indicators remain important challenges. Inflation is under threat from the fluctuating oil prices. The BSP will take a stance to ensure that it oscillates around the 4.5 to 5% band. With the new basket and base year (2006), food share to the CPI basket has declined from 42% to around 37%. Housing and related expenses remain above 20% and transportation increasing to close to 10%. Managing inflation will entail ensuring adequate food supply chain and stability of oil prices. The focused manufacturing and services sectors do not have enough demand for funds and the ease of raising funds through the bond markets by the conglomerates will continue the low interest rate regime for 2012. This is coupled by the government’s good cash position as shown by the average 91 T-Bill rate of less than 3% – the lowest in decades. Foreign exchange, on the other hand, will likely hover around 43.50 to 44 as the supply of OFWs temper the rising demand of imports for raw materials and capital expansion. The global uncertainty will continue to make precious metals a safe haven for long term liquidity. Gold reached all time highs in 2011 and will likely attempt it again this year.

Lastly, unemployment continues to be the bane in the economy. The limited growth drivers and the large and institutionalized educational system in the country are causing supply choke points. It is critical for the government to ensure sustainable growth to create an environment for long term employment. The recent improvement in the economic freedom ranking gives the hint where to focus. A fast, reliable and standardized business registration system all over the country remains the single most important obstacle for business growth and employment generation. Efforts to making this a reality is underway in different fronts. a fully operational public-private partnership coupled with renewed vigor of government expenditures will be great signs for this year. A special focus on disaster preparedness and management is also a crucial government activity. Overall, 2012 is a breakout year for the economy – rebuilding the base and renewing confidence in both local and international investment are taking roots for a better medium to long term outlook.

Alvin P. Ang has more than 20 years of professional experience in both public and private sectors.  He started his Economist experience with the National Economic and Development Authority (NEDA) of the Philippines where he developed his skills in Development Planning, Policy Formulation and Analysis.  He also worked in Investment Research and Economic Forecasting with his stints at the Philippine National Bank and All Asia Capital as Chief Corporate Planner and as Economist, respectively.  Within those periods, he has been teaching part-time at the University of Santo Tomas in Manila.  In 1999, he joined the academe as full-time Faculty member after completing his Master in Public Policy at the National University of Singapore as a Scholar of the Singapore Government.  He went on to complete his Ph.D. in Applied Economics at Osaka University in 2006 as a Japanese Government Scholar.  He has published in renowned journals such as the Review of Development Economics, Asia Pacific Social Science Review, among others.  His research fields are in Labor and Development Economics and his research interests include Privatization and Development Finance.  His researches on Remittances and Economic Growth in the Philippines have been widely circulated.  He has also consulted for the World Bank, World Health Organization, the European Union, Asian Development Bank, International Labour Organization and the USAID on policy matters. He recently won the first prize (together with Jeremaiah Opiniano) in the Outstanding Research for Development in the 2011 Global Development Awards (besting 400 entries worldwide)  held in Bogota, Colombia.  He is a lifetime member of the Philippine Economics Society where he currently is Vice President.  He is an advocate of responsible personal finance and has lectured on this topic in many fora.  Presently, he is Director of Research for Culture, Education and Social Issues and a Full Professor of Economics at the University of Santo Tomas and Visitor Professor at the Ateneo School of Government.