ADB: No sharp growth for now

The Asian Development Bank (ADB) warned yesterday that there was virtually no chance for the Philippines to achieve dramatically higher economic growth in the short-term.

In its annual Asian Development Outlook report, the Manila-based multilateral agency forecast that the Philippine economy would grow five percent and 5.3 percent in 2006 and 2007, respectively, compared to 5.1 percent in 2005.

ADB senior economist Jesus Felipe told reporters that there was “no immediate prospect of significant improvement in growth acceleration.”

“This is not a high growth rate but the macro-economic situation is improving. The outlook is not negative,” he remarked, praising the government for instituting measures to control the budget deficit.

However, Felipe said that “there must be an open acknowledgment now that the economy has only marginal scope for fiscal or monetary maneuvers to support demand and growth.”

He noted that the Philippines had remained one of the region’s laggards with almost all the other countries in Southeast Asia expected to post higher growth in the coming years.

The Philippines can grow faster, said Felipe but there was “no magic recipe.”

Instead, the government had to increase revenue collection even further to shrink both the budget deficit and government debt, he said, noting that one-third of all government expenditure was spent on interest payments.

Reforms in the power sector would also have to continue, he said, warning that investors were closely watching these developments to gauge whether Manila was really serious about regaining business confidence.

Investment, both foreign and local, had to increase. “No investment, no growth,” Felipe warned.

He said both the agricultural and industrial sectors needed to show strong growth partly to absorb the millions of Filipinos who are unemployed or underemployed.

ADB country director Thomas Crouch warned that the “negative perception held by investors” about the Philippines was also a crucial issue, citing fears of delays in the power reforms, the image of poor security and problems with Manila airport terminals, as examples.

Overall, the ADB said growth rates in developing Asia are robust and it should continue for 2006 and 2007 despite high oil prices as major industrial economies recover, boosting the region’s exports.

“Aggregate growth in 2006 is expected to soften a little to 7.2 percent from 7.4 percent in 2005 and by some more in 2007 to seven percent,” the ADB report said.

But it also warned of potential risks including avian influenza, whose short-term costs are likely to be substantial in the event of a global pandemic among humans when poorer countries would also face immense health challenges.

Global payments imbalances are also likely to widen in 2006 and maybe beyond with a possible shift in investor preferences likely to precipitate a sharp fall in the value of the dollar. It said this could punish Asian exports and stall an important engine of regional growth.

China’s growth should come in at 9.5 percent this year, moderating to 8.8 percent in 2007, in line with the government’s five-year plan that seeks to address the social environmental stresses of double-digit growth, it said.

Indian growth should also ease to 7.8 percent this year and next after 8.1 percent last year as it adjusts to higher global oil prices.

Southeast Asia’s outlook is little changed at 5.5 and 5.7 percent compared to 5.5 percent last year amid high oil prices, it added.

Azerbaijan, one of the world’s fastest growing economies last year, has a healthy momentum with new investments in oil and gas fields as well as export pipelines.

Meanwhile, the oil boon should also benefit the South Pacific economies of net-oil exporters Papua New Guinea and East Timor, while their small island neighbors, which are dependent on imported oil, will continue to face pressures, the report added.

The ADB said developing Asia’s outlook should be generally favorable, with consumer prices rising four percent this year — amid a gradual pass-through of earlier oil price rises — and 3.7 percent next year.

The region as a whole should continue to run a substantial current account surplus over the next two years.

“A narrowing current account surplus suggests that, on average, domestic demand will play a more important role in supporting growth in developing Asia in 2006 and 2007,” the report said. — AFP