Q2 2013 growth – The strength of the Philippine EconomyBy Randell Tiongson on August 30th, 2013
As the nation was preoccupied with the ‘pork-barrel’ issues and the surrender of Napoles dominating the news and social media, a very important development with a monumental impact took a back seat – the news of the stellar economic growth of the Philippine Economy for the 2nd quarter.
Beating forecasts, the Philippine Economy grew 7.5% for the 2nd Quarter despite a weakening economy in the region. The macroeconomic fundamentals of the nation is very strong, something we should be jubilant about. Despite the stellar numbers, a big concern looms and that is sustainability and inclusive growth. Agriculture remains a laggard and employment generation still needs to hit momentum. For growth to benefit the nation as a whole a robust economy should grow in a consistent and sustainable manner and more (and better) employment should be generated as a result.
From an investment perspective, we see the Philippine economy being conducive to business and good companies will definitely benefit from it and profit will find its way into well run corporations. The prevailing benign inflation rate, low interest environment coupled with strong monetary and fiscal activity will ultimately be reflected in Philippine investments despite the current ambivalence and volatility of the market. My position is positive in the long run.
I’ve solicited the insights of 3 experts who are also my good friends as to how they view the Q2 results. More minds are always better than one… and their minds are always better than mine!
“The 2Q GDP results proved that there are indeed fundamental strengths in the economy. The 7.5% growth remains better than the counterparts in the region. This alone shows that the Philippines is not and should not be classified in the same boat as Thailand and Indonesia. It is understandable that the elections provided some extra resources for growth. Nonetheless, it is notable that agriculture remained relatively weak and continues to be a drag to growth. The key agriculture products in fact exhibited negative growths. But, what is eventful and critical is the continued rebound of manufacturing growing at 10% — this is where the bulk of production is coming from. Manufacturing is shifting from the traditional clothes and footwear manufacturing to higher value chemical, electrical and electronics manufacturing. Furniture are also providing strong growth support. Construction lead by government initiatives also posted a strong double digit growth. Thus, overall, industrial growth is pulling up growth. Finally services led by growth in trading, finance and real estate reflected double digit growth. What can be observed from this current growth pattern is the emergence of new manufacturing bases as sources of competitiveness. These are important new sectors especially as we approach 2015 when ASEAN integration begins. These new bases are supported by the core services as well. “
“At present, the main beneficiaries of this growth are mostly in the services sector as the growing manufactures are relatively newer in terms of employing people; this points out the reality that there is a strong upside to these industries. The sustenance of this growth will depend on how the private sector will take on the slack once government slows down infrastructure expenses. All told, the current figures validate the fundamental strength of the economy and its difference from its peers. The weakness of the agriculture sector is already factored in for a possible full year growth of 7%. Diversification of the conglomerates and the inclusion of agriculture in its portfolio remain the order of sustainability. This is the way to create new jobs faster than the current job expansion and it is then the route to inclusive sustainability, what a long term investor is looking for.”
– Alivn P. Ang, PhD – President of the Philippine Economic Society & Professor of Economics
“The stronger than expected 2Q13 GDP of 7.5% is a reflection of the momentum of the continuing growth of the country. With private and public spending as the driver coupled with the pickup of investments, the multiplier effects of this should be bullish signs for stocks and property over the medium to long term. The sharp weakness we have been experiencing in the stock market due to external events heightens the chances to allow investors to participate at more opportunistic levels in solid companies that can only benefit from this economic growth.”
– Marvin V. Fausto, Chief Investment Officer of BDO
“The fundamentals of the Philippine economy have been really good, are still good and will continue to be good for years to come. The Q2 GDP result was just a reflection of how good our country has performed! As other ASEAN economies have slowed down, the Philippines showed how good and resilient it is as our nucleus is domestically driven compared to our peers. This makes our economy the top 5 best in the world!”
“Looking at Philippine stocks, this validates the surge in our markets over the past few months. It shows that the growth in our market is not just a fluke but is headlined by companies that are really earning. This means that our favorite stocks can be bought at an even cheaper price.”
“Does this mean that the stock market will be severely bullish for the next quarter because of this? We have to take into consideration that the GDP is lagging compared to the stock market, and that the stock market now is bearish in sentiment with a lot of foreign selling due to the recovering economy of America. Since the market is sentiment based, we will see a shift in the market to go up once we see the foreign funds stop selling and start buying again. Since they [foreign funds] comprise a huge chunk of money and they sell in huge bolts, they have a heavy say in where the direction is going. I dream of a day when I would see more and more locals investing in our market that we would not be as affected as we are now. I believe that time is coming and is about to come.”
“If you are a person who looks at value and growth this may be a time for you to buy and position yourself as prices are relatively cheaper. They are bound to go up after the sentiment shifts but there may be more waiting involved. If you are a person who follows the trend and sentiment, it may be good to eye stocks that have great value and come in once the trend has shifted & goes up. Cash is king for you at this point.”
“All in all, our GDP again had beaten estimates and beats foreign targets, in spite of news here and there about politics and scams. Investing is still more fun in the Philippines.”
– Marvin P. Germo, author of Stock Smarts and Financial Planner
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