Deutsche Bank warns economy may overheat

MANILA, Philippines - The Philippine economy is in danger of overheating as it may grow faster than its ability to deal with unemployment, a strong peso, inflationary pressures, and lack of sustainable growth, a Deutsche Bank executive said yesterday

Deutsche Bank managing director and chief economist for Asia and the Pacific Michael Spencer  said the strong peso will work against the export market, private consumption, the remittance market and earnings of the business process outsourcing (BPO) market.

 He said the Philippine economy is at risk of overheating due to inflationary pressures as the price of rice, for example, has been steady against the global grains market, which have been moving upwards by an average 30 percent.

 Rice accounts for roughly 39 percent of the country’s consumer price index (CPI).

Spencer said they expect the Philippine economy to grow 5.5 percent in 2013, after expanding 6.3 percent last year.

The government forecasts gross domestic product (GDP) to expand 6.5 percent in 2012 and between six and seven percent in 2013.

Spencer said the GDP growth rate is not at pace with the slow growth of employment which is supposed to fuel the manufacturing and industrial sector leading to sustainable growth.

“The economy is growing faster than long-run growth rates and the employment levels,” he said. “There are less workers to feed economy, which will likely lead to higher production and marketing costs, which in turn will be passed on consumers in the form of higher prices. That it turn will mount upward inflationary pressure on the economy.”

Spencer said inflation will pick up at 4.6 percent this year, marching upwards to five percent in 2014. The peso, meanwhile, is projected to get stronger in 2013 to 38 to the US dollar, and to 36.50 the following year.

The Bangko Sentral ng Pilipinas (BSP) is expected to increase interest rates a total of 75 basis points in 2013, or roughly 25 bps starting the second quarter of 2013 and every quarter thereafter.

According to the National Statistical and Coordination Board (NSCB), the Philippines had one of the worst unemployment rates in the region.

It stood at seven percent against 0.7 percent for Thailand, two percent for Vietnam, 3.1 percent for Malaysia, and 6.6 percent for Indonesia.

Six out of every 10 underemployed come from the agriculture, forestry and hunting sector of the population.