Consumer Boom Fuels Philippines as Neighbors Hit by Export Pain
The Philippines is poised to join the world's 10 fastest-growing economies this year and next as Filipinos buying goods from dresses to condominiums cushion a faltering in exports that's hurt the rest of the region.
The economy extended a fourth quarter of expansion of at least 6 percent, boosting full-year growth to 6.6 percent, faster than economists had forecast. Consumer spending has risen to about three-quarters of gross domestic product from 63 percent a decade ago, World Bank data showed. The Philippines will expand 5.5 percent this year, and 5.4 percent in 2014, putting it among the fastest-expanding economies, according to Bloomberg surveys.
"We have a generation that has a better lifestyle now," said Frances de la Cruz as she waited in line to pay $100 for a black dress and a belt at a Zara store in a packed mall in Manila on a recent Saturday. De la Cruz, a 31-year old call center director, is part of an industry that has helped spur 10 percent income growth in the nation from 2009 to end-2011, along with remittances and a burst of manufacturing from Japanese investment.
The consumer spending strength means the nation may be more resilient to global shocks compared with other Asian export- dependent economies from Singapore to Taiwan, where growth slumped in 2012 as demand for goods eased.
Since he took office in 2010, President Benigno Aquino has sought to transform the Philippines from a laggard to one of the fastest-growing economies in the region by increasing government spending, curbing the budget deficit and reducing corruption, taking the country closer to an investment-grade rating.
Consumer spending in the nation, among the most consumption-driven in Asia, rose 6.9 percent last quarter, holding above 5 percent for an eighth quarter. That's spurred sales of brands from Tommy Hilfiger to home-grown Suyen Corp.'s Bench.
"The Philippines has proven it's got particular strength in mitigating external headwinds because its domestic demand has kept the economy running even as other nations suffered," said Vishnu Varathan, a Singapore-based senior economist at Mizuho Corporate Bank Ltd. "Now with Aquino boosting infrastructure, capacity building, the growth potential over the longer term is rapidly increasing. The Philippines is on a very good footing to remain the blue-eyed boy in the region."
The Philippine peso has risen about 5 percent in the past 12 months, the best performer among 25 emerging-market currencies tracked by Bloomberg. The benchmark Philippine Stock Exchange Index climbed to a record in January.
Southeast Asia's second-most populous nation already enjoys a demographic dividend compared to many of its neighbors, with most of its population in the 15-to-64 working-age range. Its labor force will expand by almost 18 million, or 31 percent, to 75 million by 2020 compared with 2010, with a median age of 23.9, Merrill Lynch has predicted. That compares with 37.8 in China and 43.4 in South Korea.
"It's a young, booming population," said Trinh Nguyen, a Hong Kong-based economist at HSBC Holdings Plc. "There's an energy, a euphoria you can sense in the Philippines. The domestic market is burgeoning, thanks to strong population and income growth. This has attracted flows from foreign investors looking to capitalize on the consumption-driven economy."
Japanese investment into the Philippines grew about 30 percent in 2011, while global retailers including Harry Winston Diamond Corp., Uniqlo Co. and Forever 21 Inc. have opened shop or expanded operations recently. Auto sales rose 11 percent in 2012, according to the Chamber of Automotive Manufacturers of the Philippines.
Aquino, the son of former President Corazon Aquino, is increasing spending to a record this year while seeking more than $17 billion of investments in roads and airports to spur growth to as much as 7 percent in 2013. Standard & Poor's in December raised the country's sovereign rating outlook to positive, citing improved governance and public finances.
A peace agreement with Muslim guerrillas in the mineral- rich Mindanao island in October is forecast to bring about $1 billion in investment commitments. Aquino has also shown progress in the fight against graft, with Transparency International raising the country's ranking on its annual corruption index to 105 last year, higher than Indonesia at 118.
Exports, which made up about 30 percent of GDP in 2012, slowed in November from the previous month. The nation also remains reliant on remittances, which account for about 10 percent of GDP. The unemployment rate is 6.8 percent.
"Growth is uneven," Nguyen said. "The government needs to raise investment to create jobs and cut poverty to make growth more inclusive."
That hasn't deterred consumers like Charlotte Co, a 26-year old accounting analyst who bought a one-bedroom condominium for 3.2 million pesos ($79,000) in 2011 and purchased a bright yellow Céline Trio bag for $1,000 in December with her savings.
"I would be brave to invest if I don't believe things are really changing," Co said. (http://bloom.bg/XVmWwg)