...the PH economic optimism

Optimism amid dark global economic clouds highest in PH, says think tank


Daxim L. Lucas
INQUIRER.NET
24 October 2019

Global uncertainty may be on the rise but Philippine companies have kept an optimistic outlook on the domestic economy, according to a recent business survey by accounting and consulting firm Grant Thornton International.

In the Asia-Pacific region, emerging markets including the Philippines are holding up well, Grant Thornton’s International Business Report said.

The report was based on a quarterly global survey of nearly 5,000 mid-market companies in over 30 countries interviewed in May and June this year.

Data on the first half of 2019 showed that optimism, revenue expectations, and profitability forecasts were down in economies around the globe compared with second-half 2018 data, “with most of the main measures of growth at levels not seen since 2016,” the report said.

Yet pockets of resilience were seen across mid-sized companies, such as in export expectations, which are expected to fare well globally amid the threat of a US-China trade war.

The outlook continued to vary between emerging and developed economies in the Asia-Pacific, reflecting varying levels of exposure to the trade war. Optimism was generally down in the region, falling 8 percentage points since the second half of 2019 and more than 50 percent lower than the first half of 2018.

Less developed economies like the Philippines, however, had rosier prospects. Philippine businesses were more upbeat than anywhere else in the region, with 84 percent of those polled being optimistic about the domestic economy.

Expectations for revenue and profit growth in the ASEAN mid-market, too, rose and were now among the highest globally.

“It’s important to heed the signs of volatility and uncertainty in global financial markets, but it’s also worth highlighting that local business leaders choose not to be paralyzed or get sidetracked by the grim possibilities,” P&A Grant Thornton chair and CEO Maria Victoria Espano said.

She also cited bigger capital spending, especially by the government, and the steady flow of remittances from overseas Filipino workers that continued to boost overall economic growth and optimism.

In September, a slowdown in the global economy and domestic investment prompted the Asian Development Bank to offer a slightly lower economic growth forecast for the Philippines.

In an update of its flagship annual economic publication, the ADB changed its forecast for the country’s gross domestic product growth to 6 percent in 2019 and 6.2 percent in 2020, against earlier forecast of 6.4 percent for both years. The International Monetary Fund has a slightly lower projection of 5.7 percent GDP in 2019, 6.2 percent in 2020, and 6.5 percent by 2024. The World Bank’s updated projection for 2019 is at 5.8 percent GDP growth.

Investor sentiment in the country was generally positive paired with a pickup in business confidence, as reflected in the Bangko Sentral ng Pilipinas’ third-quarter consumer expectations survey./TSB

...the falling poverty in PH

PH poverty rate seen falling below 20% starting 2020

Ben O. De Vera

Inquirer.net

16 October 2019

Amid easing inflation and rising incomes, the World Bank expects poverty rate in the Philippines to fall below 20 percent starting next year.

In its Macro Poverty Outlook for East Asia and the Pacific report, the World Bank projected poverty incidence in the Philippines at 20.8 percent by the end of 2019, down from 26 percent in 2015, the latest comparable full-year date from the Philippine government.

The report was released this week on the sidelines of the Washington-based lender’s annual meeting.

The World Bank had estimated poverty incidence in the Philippines at 24.5 percent for 2016, 23.1 percent for 2017 and 21.9 percent for 2018.

Its medium-term poverty projections were based on the lower middle-income poverty line of $3.20 per day.

At that threshold, the World Bank sees the Philippines’ poverty rate further declining to 19.8 percent next year and 18.7 percent in 2021.

“Despite a temporary growth slowdown in the first half of 2019, progress on shared prosperity is likely to continue,” it said.

Partial estimates of the 2018 Family Income and Expenditure Survey showed that incomes of households in lower-income deciles grew at a much faster pace than the average, the World Bank report read.

“Meanwhile, cash transfer schemes from the government will continue to help cushion the impact of negative shocks. Given the continuous expansion of nonagriculture wage employment, rising real wage, continuation of social programs, and stabilizing inflation, the declining trend in poverty is likely to continue,” it added.

In a report last month, the World Bank said the 12-year-old conditional cash transfer scheme called Pantawid Pamilyang Pilipino Program (4Ps) slashed the nationwide poverty rate by 1.2-1.5 percentage points (ppt) between 2012 and 2015.

4Ps also reduced income inequality by 0.5-0.6 ppt in the same period, it said.

...the China's Belt & Road biggest beneficiaries

Property development poised to win big with belt and road


RI investments in Southeast Asia are giving rise to huge oppurtunities in construction and real estate sectors.

Syed Ameen Kader
Zawya
16 September 2019 


China's ambitious Belt and Road Initiative (BRI) embarked on a new phase with the unrolling of BRI 2.0 by Chinese president Xi Jinping during 2nd BRI Forum in April. As China promises to address transparency concerns and open BRI to wider participation, one of the regions that can immensely benefit from this revamped programme is Southeast Asia.

BRI investments in new ports, railroads and highways in the region are expected to drive construction and real estate (CRE) developments in logistics, manufacturing and industrial sectors along those routes.

The biggest beneficiaries in BRI-related investments over recent years have been Thailand, Malaysia, the Philippines and Cambodia, said real estate consultancy Knight Frank in its report 'New Frontiers 2019.'

"For these markets and China, a capital injection brings mutual benefit: with infrastructure funding, the host country speeds up its economic expansion, while China gains new trading partners," said Justin Eng, Associate Director at Knight Frank Asia Pacific.

The report noted, over the past five years since the BRI's launch, $59.25 billion in Chinese-linked capital has been invested across the Southeast Asian transportation, real estate and logistics sectors; almost 3.5 times the $17.1 billion invested in the five years prior to BRI.

Accounting firm KPMG agrees that countries across Southeast Asia are experiencing rapid economic growth and high levels of public infrastructure expenditure.

"These dynamics are leading to an attractive and diverse range of opportunities in the construction and real estate sectors," said Andrew Weir, Regional Senior Partner, KPMG Hong Kong and Vice Chairman, KPMG China.

He said specific countries which are expected to see strong volumes of real estate development and construction activity in coming years include Vietnam, Thailand, the Philippines and Indonesia.

Within the real estate sectors, the logistics and industrial sectors will be the biggest initial beneficiaries, according to Knight Frank.

When a new port is built, Eng explained, there is a corresponding rise in demand for warehouses to store incoming goods prior to being transported inland.

"We are witnessing an uptick in client interest - especially from the global 3PLs - in exploring build-to-suit opportunities within these markets, especially around current major BRI projects," he said.

Trade connectivity

A major theme that is being observed right now in several Southeast Asian markets is investment in infrastructure that enhances people and trade connectivity to increase the scope for growth in domestic trade as well as industrial and agricultural exports.

"Thailand and the Philippines are good examples of this dynamic," said Michael Camerlengo, Partner, Infrastructure Advisory at KPMG Transaction Advisory Services.

In Thailand, he said, the Eastern Economic Corridor (EEC) is a special economic zone development initiative that is attracting a lot of attention. There are plans underway to connect the country with China, via Laos through high-speed rail infrastructure as well as the expansion of the U-Tapao airport and Laem Chabang Port.

"These connectivity projects will lead to significant industrial and logistics development and construction opportunities along the corridor," said Camerlengo.

Whereas, in the Philippines, he said the government has been embarking on its 'build, build, build' programme which is directed at improving and expanding infrastructure across the country. This includes a high volume of expressway and bridge projects related to better connecting the archipelago as well as reducing flood-related risks across the country.

"Similar to Thailand, these projects will lead to increasing transaction volumes in industrial and agricultural real estate in areas that are proximate to these enhanced and new networks," said Camerlengo.

Real estate investment

Over the last couple of years, Chinese real estate investors have shifted their focus away from the US to Europe and Asia as the country's economy and currency gained strength.

Chinese investment in US property assets dropped 64 percent in 2017 from 2016, to $5.9 billion, according to Real Capital Analytics (RCA) data, highlighted by Colliers in its report titled: The Dragon Spreads its Wings over Asia, released last year.

Conversely, the report added, Chinese investment in Asian property assets increased 34 percent to $12.5 billion, while Chinese investment in European property assets surged 336 percent to $18.7 billion, during the same period.

The report further noted that Chinese investment in Southeast Asia and South Asia reached $2.5 billion in 2017, nearly four times the level of 2016 and the second highest level ever (after $4.1 billion in 2013).

Looking ahead over five years, Colliers said China's ambitious "One Belt, One Road" project, coupled with the firm Chinese economy and RMB (Renminbi) strength, ought to drive Chinese investment in emerging Southeast and South Asian markets.

This was reflected in CBRE's China Investor Intentions Survey 2019 which revealed that Chinese buyers retain strong intentions to invest within Asia, partly due to opportunities to purchase assets in sectors expected to benefit from the BRI.

"Emerging Asian countries, such as Vietnam and Thailand, registered increasing interest from Chinese investors. The survey found 46 percent of respondents chose Emerging Asia as a most preferred investment region, 4 ppts higher than last year," said Sam Xie, Head of Research at CBRE China.

He said Southeast Asia continued to benefit as labour intensive manufacturers relocate supply chain out of China.

"Riding on this trend, Chinese logistics developers and investors continue to develop logistics infrastructure and build supply chains in emerging Southeast Asia in anticipation of growing demand," said Xie.

Meanwhile, he added, the residential markets in many Belt and Road countries are emerging to be preferred destinations for Chinese investors.

While there's currently no forecast or projection in terms of investment volumes (as all outbound investment activities are subject to state approvals), Zhang of Cushman & Wakefield pointed out that China outbound real estate investment into belt and road averaged around $3 billion (excluding infrastructure) for the past six years.

Daniel Yao, Head of Research East China at JLL agreed that there are increasing interests from Chinese developers (but not many from domestic institutional funds so far) seeking opportunities of buying land plots over the past couple of years in Southeast countries, including Vietnam, the Philippines, Cambodia, and Indonesia.

According to RCA data, Chinese real estate investment volume for development sites in Malaysia and Thailand has been $73.84 million and $25.78 million respectively in the first half of 2019.

This comes after Chinese investors spent $87.69 million and $27.62 million in Cambodia and Indonesia respectively for real estate transactions for the whole of 2018, according to RCA.

"China, and its key cities, in particular, are growing connections with other countries and cities, not only under the umbrella of BRI but also in more organic ways," said Yao.

For Chinese developers, he said, residential and commercial (especially for office-use) land plots in both mature and emerging locations are the most sought-after.

Mitigating risks

While most of the concerns about BRI including debt trap are primarily related to mega infrastructure projects involving government entities, real estate projects executed through joint ventures (JV) between Chinese and local companies are also prone to risks.

"One major risk we see is political in nature such as a change in government," said Eng of Knight Frank.

Richard Fu, Senior Associate Director, Belt and Road Outbound Consulting Team, Consulting Department, Cushman & Wakefield, said political risks are difficult in BRI investments.

"Getting China investors and local partner to reach an effective partnership is also difficult. To ensure economic feasibility, we would suggest investors to have deep and systematic study before conducting actual investment," he said.

Eng pointed out that the 'debt trap' concern mainly involves local governments who undertake the project with a Chinese state-owned enterprise partner.

In order to safeguard themselves, he suggested that local companies undertaking BRI projects should conduct their proper due diligence before making major capital expenditure decisions.

"While major projects are unlikely to be cancelled once announced, they could face major delays in completion which in turn will lower returns to investors," warned Eng.

KPMG's Weir pointed out that there are always risks associated with development projects, BRI included.

"Whether construction-related, regulatory, commercial or people related, all risks need to be carefully identified, assessed, quantified and mitigated before proceeding with a new development," he said.

By way of example, Weir said, a common people-related risk on BRI projects includes navigating cultural differences and similarities as a foreign investor into a new market.

When it comes to commercial risks, he said identifying the customer demand profile for the project is key - whether it be office, residential, hotel or retail development, adding that identifying who the end-users will be, what their requirements are and expected demand levels will ultimately determine the prospects for financial success and key risk factors to address.

"Once this dynamic is well understood, assessing the optimal debt and capital structure that will be sustainable in the long run becomes a more straightforward proposition," said Weir.

From an investment perspective, said Zhang of Cushman & Wakefield, forming a JV with the local developer seems to be a most effective way of adapting to local markets and mitigating potential risk in planning, construction and sale/lease.

Additionally, Knight Frank's Eng said they are starting to see greater scrutiny now on how the BRI label is being used on projects across the region and how their structures (both debt and partnerships) are being assembled.

(Reporting by Syed Ameen Kader; Editing by Anoop Menon)

(anoop.menon@refinitiv.com)

...the continous PH economic growth

Fitch keeps PH growth projection at 6.1%


Mayvelin U. Caraballo
Manila Times
11 September 2019


FITCH Ratings has maintained its 6.1-percent growth forecast for the Philippine economy this year as it expects it to bounce back in the second half.

Workers are busy at a construction site in Quezon City. PHOTO BY RUY MARTINEZ

In a report released on Tuesday, the global credit ratings agency said the figure kept the country among “the fastest-growing economies” in the Asia-Pacific region.

The projected figure falls within the government’s downwardly revised 6- to 7-percent gross domestic product (GDP) growth target range.

Fitch also said it “expects growth to improve in 2H19 [second half of 2019] following a weak first half. Growth was weighed down by the delay in budget implementation and a weak external environment.”
The government earlier reported that the country’s GDP expansion slowed to 5.5 percent in the second quarter, bringing growth in the first half of the year to 5.5 percent.

A dispute between the Senate and the House of Representatives over alleged insertions resulted in the four-and-a-half-month delay in the passage of this year’s budget. This forced the government to run on last year’s outlay, limiting it to spend for items detailed in the 2018 appropriations and not on programs and projects supposed to be implemented this year.

Fitch also believes that the tight monetary policy and slowing growth momentum last year “have lowered overheating risks” for the economy.

The Bangko Sentral ng Pilipinas implemented a cumulative rate hikes of 175 basis last year, when the country’s economic growth slowed to 6.2 percent from 6.7 percent in 2017.

On the country’s average inflation rate, the debt watcher expects it to slow to 3.1 percent this year from 5.2 percent in 2018.

Its inflation forecast fell within the 2- to 4-percent official target range of the government, but was higher than the 2.6-percent forecast of the central bank.

Year-to-date average inflation rate now stands at 3.0 percent following the three-year-low 1.7-percent print in August.

...the most improved tourism performance

PHL improves ranking in WEF tourism index

Cai Ordinario
Business Mirror
05 September 2019


"The Philippines was considered the most improved when it comes to Ground and Port Infrastructure in Asia and the Pacific. WEF also regarded the Philippines as the most improved in terms of its overall performance in the region."


BETTER ground and port infrastructure allowed the Philippines to improve its performance in the 2019 edition of the World Economic Forum’s (WEF) Travel & Tourism Competitiveness Index.

Local tourists enjoy the clean waters in Siargao, one of the country’s top tourist attractions. (BUSINESSMIRROR FILE PHOTO) 

In the 2019 Travel & Tourism Competitiveness Report (TTCR), WEF said the Philippines now ranks 75th out of 140 countries with a score of 3.8 in the index. The overall scores range from 1 to 7, with 1 being the lowest and 7 being the highest.

The Philippines was considered the most improved when it comes to Ground and Port Infrastructure in Asia and the Pacific. WEF also regarded the Philippines as the most improved in terms of its overall performance in the region.

“The Philippines had the fastest rate of improvement, moving up four places to rank 75th globally. The country showed impressive improvement on overall infrastructure [90th to 80th] and ICT [information and communications technology] readiness [86th to 82nd], but still faces challenges when it comes to safety and security [135th],” the report read.

The TTCI is measured based on a country’s performance in enabling environment; travel and tourism policy and enabling conditions; infrastructure; and natural and cultural resources.

The Philippines ranked the highest in terms of natural and cultural resources at 46th with a score of 2.8, followed by travel and tourism policy and enabling conditions, 53rd with a score of 4.6.

The country ranked 80th in infrastructure with a score of 3.2 and ranked 93rd in enabling environment with a score of 4.4.

WEF said the Philippines posted its highest ranking for Price Competitiveness at 24th overall, followed by natural resources at 36th and human resources and labor market, 37th out of 140 countries.

The report stated that the Philippines ranked the lowest in terms of safety and security at 135th; followed by health and hygiene, 94th; and ground and port infrastructure.

“With travel barriers and travel costs declining, many countries have been significantly increasing their competitive position in global tourism,” said WEF Head of Mobility Christoph Wolff.

“Countries can leverage this opportunity to generate economic and development returns, but they must address gaps in infrastructure and environmental protection to make sure these returns can be achieved over the long term,” Wolff added. WEF said the travel and tourism sector remains resilient in the face of challenges. The sector recorded around 1.4 billion global tourist arrivals in 2018, beating expectations.

However, WEF warned that cheaper travel costs and fewer tourist barriers are placing the infrastructure of travel hot spots under pressure to meet demand.

The report also said emerging travel markets may already start to feel over-tourism pressures as their institutions keep up with rising demand.

“The top 25 percent of countries account for over two-thirds of arrivals. This combination of concentration of tourist arrivals and rapid travel growth is putting a strain on travel hot spots, despite relatively high infrastructure and travel services scores,” WEF said.

In this year’s index, Spain held the top spot followed by France, Germany, and Japan, with the United States replacing the United Kingdom in the top 5.

Among the top 10 countries, the UK was the only country to fall in the rankings. It now sits under the increasingly competitive United States at spot 6, due to a decline in online searches for its natural and cultural resources, and a weaker business environment.