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Economy

In one last hurrah, Aquino government to spend more

MANILA -- The better-than-expected 6.3% expansion of the Philippines' gross domestic product last quarter has raised hopes for sustained momentum in 2016. But headwinds are about to get stronger.

     The October to December growth was the fastest for the year 2015, which saw the first two quarters suffering a blow from anemic government spending. This brought the full-year growth to 5.8%, the slowest annual expansion since 2011.

     But Arsenio Balisacan, the outgoing national economic planner, said 5.8% growth was "respectable" for a year with a difficult external environment, the onset of El Nino and "challenges in government spending" in the first half. He had previously set 6% as a "realistic target" to replace the original forecast of 7% to 8%.

     Household consumption, the Philippines' most reliable economic driver that generates two-thirds of the Southeast Asian nation's $300 billion economy, posted 6.2% growth for 2015, up from 5.4% the year before, with inflation at record lows due to cheap oil.

     Strong consumer demand was sustained by steady remittances from overseas and solid revenues in the booming outsourcing industry. This has helped sustain the economy through a weak export period that has hurt other countries in the region, particularly Indonesia and Malaysia.

     Complementing consumer confidence, government spending was bumped up in the second half after President Benigno Aquino ordered quicker budget disbursements. As a result, government consumption logged a 9.4% growth last year compared with 1.7% in 2014, and investment jumped 13.6%, compared with 5.4%.

     Balisacan, who will become the head of the new Philippine Competition Commission next month, sees stable national growth pillars and is reinstating last year's missed 7% to 8% growth target for 2016. Election-related spending will also have a positive effect as candidates stump for votes, he said.

     But this will not be easy.

     "During 2016, the outlook for the export sector is expected to remain difficult," said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight.

The headwinds

Already, the Philippine trade deficit widened by 325% in 2015 on weak exports due to sagging demand from China and other key markets.

     The U.S. and Japan are bigger export markets for the Philippines, but the impact on the global supply chain due to China restructuring its economy is expected to be a drag on outbound shipments, said Alvin Ang, former president of the Philippine Economic Society.

     The agricultural sector grew only 0.02% in 2015 as effects of the El Nino dry weather phenomenon started to kick in. But the drought is expected to get stronger and linger until the second quarter of this year, threatening to dampen agricultural production, which makes up a tenth of the economy.

     "The Philippine government should boost domestic demand through fiscal measures such as boosting infrastructure spending on high-priority projects such as roads, power and ports," Biswas said. "The government should also ramp up efforts to attract manufacturing and services investment in the Philippines, to help strengthen and diversify the export sector and generate job growth."

     Aquino has vowed to spend at least 5% of GDP this year to build infrastructure.

     He will wrap up his single six-year term in June, and the coming transition is a concern to some.

     "The presidential elections will be critical to the medium-term economic outlook for the Philippines," Biswas said. "In order to sustain rapid growth over the next decade, it is crucial that the new administration continues to pursue economic reforms and liberalization measures, as well as give a high priority to improving the ranking of the Philippines as an attractive location for multinationals to do business."

     Balisacan agrees: "We are hopeful that the next leaders of this country will sustain the programs and reforms that have gathered significant gains over the years."

     "The next two to three administrations will have to keep investing in infrastructure and human capital ... to see this country joining the ranks of high-income countries," he added.

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