A Danish investment advisor remains bullish on the Philippines which he says will be among the fastest growing economies over the next decade as the center of economic power shifts from Europe to Asia.
Peter Lundgreen, the founder and chief executive of Copenhagen-based Lundgreen’s Capital, says the Philippines, along with Malaysia, Indonesia and China will continue to lead the global expansion in the next 10 years, as European countries continue to post sluggish growth. The uncertainty over the future of Europe hangs in the next European Parliament election in May, he says.
Lundgreen warns against using monetary stimulus to support growth in the Philippines. He says while newly-appointed Bangko Sentral ng Pilipinas Governor Benjamin Diokno appears to be a highly qualified and very respectable official, his links to the government is a source of worry for some.
“I am convinced that he is a very respectable person. But there is no doubt that given his prior position as budget secretary, he is very close to the government. He has said more things about growth than monetary policy. That is a big worry,” Lundgreen says in an interview in Makati City.
“At the Bangko Sentral, they should focus on the monetary policy. He [Diokno] needs to prove that he has independent thinking. People get nervous in any country where the central bank sort of moves too close to the government,” he says.
Lundgreen, who last year claimed that the BSP was behind the curve in monetary tightening, believes that it is not yet time to reduce interest rates despite the softening inflation rate.
“In the Philippines, some are arguing that interest rates should be lower. I don’t see that at all. There is no reason to lower interest rates. The hikes last year were very, very late and the country was behind the curve,” he says.
“Lowering interest rates in the Philippines would not necessarily improve GDP growth. I don’t believe it would,” says Lundgreen.
Lundgreen says while he is generally hopeful about the global economy, there are several areas of concern including the events unfolding in Europe.
“What will be fantastic and exciting is the coming election for the European Parliament by the end of May. Normally, it does not gain too much attention, but this time, the European Parliament is getting more influence. That makes the election a bit important,” he says.
He says uncertainty on the direction of the European policies worries many investors. “It will be a signal to the rest of the world and investors from Asia and the US that Europe has no clear direction. That would hurt the euro and that would make investments in Europe less interesting,” he says.
Lundgreen says the US and China will continue to lead economic growth despite their perceived trade and political dispute.
“I think for the next 10 years, regardless of whether the US and China solve their current trade dispute, we will see this ongoing sort of testing the power between the US and China all the time. China is growing and is showing more muscles,” he says.
“Due to Beijing’s growing trust in China’s own political importance internationally, in particular in the Asia Pacific region, the ongoing tension between Washington and Beijing is unavoidable in my view. Such a situation will surely spill-over on the trade relationship between the two superpowers in the future, leading to retuning nervousness,” he says.
Lundgreen says despite the lower-than-expected growth in China in the vicinity of 6 percent, it will soon surpass the US as the world’s largest economy. “It is not a question of if, but when. Then you have a one-party system dominating the economic power in the world,” he says.
“China is more exciting than usual these days. The party congress has approved a range of new stimulus initiatives that should prevent the GDP growth from dropping too much,” says Lundgreen.
Lundgreen also believes that the US economy will avoid a recession.
“These are examples why I argue that US households have become more economically robust to forego a crisis and nothing currently points towards a recession,” he says.
“My view is that a debt crisis is more likely to happen at some point, rather than an economic crisis. A [US] debt crisis will, of course, be a disaster for economic growth, but it does matter where the problems arise—a debt crisis or economic crisis,” he says.
“Concerning the US government debt, a crisis develops when investors consider the sovereign debt has become too high – this may well happen one day, though it will take a long time,” says Lundgreen.