THE services sector continues to be the main driver of economic growth in the Philippines, according to a report by economic think tank Institute for Development and Econometric Analysis (Idea).
Despite the peso’s volatility, the service industry — which includes transportation and communication, trade, finance, real estate, private and government services — will account for more than 40 percent of the country’s gross domestic product (GDP), said economist Dr. Cayetano Paderanga Jr., (Idea) chairman and president and chief executive officer of Credit Information Bureau Inc. (Cibi).
Paderanga presented Idea’s study on the country’s economy during a mid-year economic briefing at the Waterfront Cebu City Hotel and Casino last Wednesday.
Paderanga said that in the first quarter of this year, the services sector posted a 9.1 percent growth from 6.66 percent in the same period last year, or a 4.36 percent contribution to growth in the GDP, or the total value of services and products produced in the country.
Due to lower inflation and high remittances from the overseas Filipino workers (OFWs), Paderanga said the trade sector continues to be strong due to stable consumer spending.
Growth in the finance sector, mainly driven by banks, is caused by lower interest rates, apart from OFW remittances, that have resulted in higher lending.
BPO industry
Sustained demand for outsourcing and off-shoring services, in particular, have led to the increase in the private services sector which is determined mainly by the business process outsourcing (BPO) industry.
Paderanga said while it is adversely affected by the strong peso, the real estate sector will continue to stay afloat given the low interest rates scenario as well as high demand for office spaces by BPOs. There is also high demand for residential units for OFWs and their dependents.
But Paderanga said the growth in the services sector is not likely to be sustained in the second half of the year unless the National Government’s budget deficit target is brought down.
“It may grow lower than three percent to fit the deficit target,” he said.
The Idea report also stated that the industry sector has grown 5.35 percent from January to March 2007, which is a slight difference to the 5.34 percent growth it made in the same period last year. The industry sector has a 1.7 percent contribution to GDP growth in the first quarter of this year.
Due to a slowdown in global demand and the emergence of regional competitors, particularly China, manufacturing sector figures may go down.
Mining
But Paderanga said the mining sector is this year’s emerging market with high demand for mineral exports to China.
He said, though, that investments in the mining sector are merely “value added” with the re-opening of old mines.
Economic data from Idea predicted that by the end of year and in early 2008, the services sector will maintain its lead in the country’s economy with a nine percent growth.
The telecommunications sector, for example, will show signs of “maturity” as companies continue to innovate their products and services, it said.
Other highlights in the Idea report are:
l The retail sector will be driven by new shopping centers as consumer spending is maintained.
l Interest rates will continue to make banks favorable for lending.
l Demand for office spaces and housing will still be on the rise but growth may taper off in 2008 as projects near their completion.
l Private services like health, hotels and restaurants will grow vis-à-vis an increase in tourism activities.
l An increase in global demand for outsourcing will see the entry of additional BPO players but Paderanga said the peso’s rapid appreciation may pose a problem.
l Government services may also grow but spending may be constrained by the budget deficit.
l Manufacturing sector figures will remain flat until next year affecting top performers like food, furniture and fixtures. A decline in tobacco and electrical machinery is expected as well.
While Paderanga is optimistic about the country’s economic prospects in the next two years, he said one major factor affecting growth will be governance issues. (MMM)
