Domestic demand seen to fuel growth as PPP stalls

Posted at 09/16/12 12:24 PM

MANILA, Philippines - The government cannot rely on its centerpiece Public-Private Partnership (PPP) initiative for growth this year given delays in rolling out big-ticket projects but domestic demand should be enough to fill in the gap, an investment bank said.

“Progress on the PPP projects remain slow and as a result, gross fixed capital formation and construction remain below potential,” Singapore-based DBS Bank Ltd. said in its quarterly report released last Friday.

“Increasingly, the PPP story looks to be delayed. Even if the projects are bid out early in early 2013, the subsequent ramp up in construction and investment look likely to only materialize in the later half of next year,” it added.

Since its launch in November 2010, the PPP program has been hit by delays caused by project reviews and resignation of officials in implementing agencies. To date, only one project – the P1.96-billion Daang Hari-South Luzon Expressway link - has been awarded, with construction expected to start next month.

Another project – the P10-billion PPP for School Infrastructure Project-has been bid out with awarding expected any time soon. The Aquino administration has promised to make up for the slack last year and bid out eight PPP projects this year.

With PPP out of the picture, DBS said growth this year would come from robust domestic demand buoyed by healthy consumption, acceleration in government spending and a resilient services sector.

Last week, DBS raised its growth forecast for the Philippines to 5.6 percent this year from 5.3 percent previously after the first semester expansion came in strong at 6.1 percent. The six-month result was slightly above government’s five- to six-percent target for the year.

“The Philippines has been a clear outperformer this year, registering high growth and lower inflation,” it said.

Household consumption continued to grow, DBS said, even as it noted that remittances have been slowing down in previous months, with growth hitting 15-month low at 4.2 percent last June.

Analysts have pointed to an average $20 billion in remittances sent out every year as one reason why Filipinos have more purchasing power contributing to consumption growth.

“That said, we are not unduly worried about the decline in remittance growth rate,” DBS said as it expects such to hit between five- and six-percent this year.

The central bank forecast remittance growth to hit five percent in 2012.

“Government spending is another positive contributor, adding an average of 1.3 percentage points to GDP (gross domestic product) growth in the first half,” DBS explained. In terms of industry, the services sector was tagged to have “outperformed” expectations.

State spending rose 5.9 percent in the second quarter year-on-year, while the services sector grew 7.6 percent during the same period.

For 2013, DBS expects Philippine growth to slow to five percent due to continued weakness of the global economy that could dampen export product demand, but stressed that rolling out PPP projects by then could save the day.