Philippine President Benigno Aquino said there is no danger of the economy overheating, downplaying the risk of asset bubbles forming even as annual growth exceeds 7 percent.
The central bank is on guard to contain inflation and asset prices, Aquino, 54, said in an interview yesterday at the presidential palace in Manila. The Philippines is targeting growth of 6.5 percent to 7.5 percent this year after expanding 7.2 percent in 2013, he said.
Aquino has overseen the resurgence of a nation once called the Sick Man of Asia and is seeking faster expansion to reduce among the highest unemployment and poverty rates in the region. The economy can cope with the current pace of growth without worrying about excessive inflation because it is underpinned by demand for homes and office space, as well as the need to create more jobs for millions entering the labor force, he said.
“There’s so much to be done in this country,” Aquino said. “There is demand that still has to be met as opposed to availability of supply,” he said, referring to a backlog of 4 million low-cost houses.
Philippine growth in 2012 and 2013 was at the fastest two-year pace since 1954-1955, data compiled by Bloomberg show. Bangko Sentral ng Pilipinas has held its key interest rate at a record-low since October 2012, even as inflation last month accelerated to a two-year high and money-supply growth exceeded 30 percent every month from July through December.
The peso fell 0.3 percent to 44.748 per dollar as of 10:24 a.m. in Manila, set for a third day of declines, according to Tullett Prebon Plc. The Philippine Stock Exchange Index rose to a three-month high.
Analysts including Michael Wan at Credit Suisse Group AG are starting to warn of pressures in the economy. The Philippines risks going down the same path as Indonesia two years ago as it delays tightening monetary policy amid surging liquidity growth and rising property prices, Wan said.
Indonesia, which refrained from raising its benchmark rate in 2012 even as expansion exceeded 6 percent, saw its currency slump the most in Asia last year as growth slid to a four-year low.
“The Philippines is certainly warming up,” Singapore-based economist Wan said. “If policy makers are not careful, they may run into the same mistakes Indonesia made: keeping policy settings too loose for too long and risk a return to the boom-bust cycles the nation has been known for.”
Money-supply growth in the Southeast Asian nation was more than three times that in Malaysia and Thailand, data compiled by Bloomberg show. The surge is not worrisome, and the rate will return to its normal pace of 12 percent to 14 percent this year, central bank Governor Amando Tetangco said this week.
“We are very proactive; we’re trying to control any speculative activity,” Aquino said yesterday.
The peso is undervalued and there’s no fundamental reason for the weakness, Finance Secretary Cesar Purisima said yesterday. The currency touched 45.475 per dollar on Feb. 4, the weakest since Aug. 2010.
Credit growth in the Philippines is “acceptable” and in line with growth momentum, said Jeff Ng, a Singapore-based economist at Standard Chartered Plc. While “event risks on food and energy prices could lead to higher inflation,” Ng said that “for now, there is very little risk of overheating.”
Business process outsourcing is expected to bring in $25 billion in revenue by 2016 and create 1.2 million jobs, Aquino said. The industry now contributes about $16 billion to $17 billion and employs 900,000, Purisima said yesterday.
The administration plans to create as many as 2.34 million jobs through 2016 to reduce the unemployment rate to between 6.5 percent and 6.7 percent, and cut the poverty ratio to a range of 18 percent to 20 percent, Economic Planning Secretary Arsenio Balisacan said earlier this month. The Philippines will reach a demographic “sweet spot” from 2015 when a large portion of the population will enter the workforce, Aquino said.
The demographic dividend -- a term popularized by economists David E. Bloom, David Canning and Jaypee Sevilla in a 2001 National Bureau of Economic Research study -- occurs when most of a country’s population is in the 15-to-64 working-age range. This increases productivity if supported by policies that promote health, family, labor and financial and human capital, the study concluded.