ADB cuts RP growth estimate to 4.7%

The Asian Development Bank (ADB) slashed its growth forecast for the country this year to 4.7 percent from five percent previously as a result of “subdued government spending” and weak exports receipts, saying that increased public and private investment may see a pickup in economic activity next year.

The ADB, in a report, warned that the lack of progress on the government’s reform efforts, including public-private partnerships, would also erode investor sentiment.

In an update of its flagship annual economic publication, Asian Development Outlook 2011 (ADO 2011), released yesterday, ADB trimmed its gross domestic product (GDP) forecast with expectations that growth for 2012 will pick up to 5.1 percent, with brighter prospects seen for investments, which since 2010 have been a major contributor to GDP growth.

“Job creation remains lackluster, with the youth unemployment rate more than double the overall jobless rate,” ADB chief economist Changyong Rhee said. “Further increases in investment along with policy and governance reforms are needed to boost jobs,” he added.

State spending fell back in the first half of 2011 after high election and typhoon-linked outlays in 2010 with government agencies taking a more cautious stance amid an anti-corruption drive.

However, private investment grew strongly, while private domestic consumption also increased, supported by a firmer labor market and remittances from overseas workers, according to the ADB.

Merchandise export growth, in contrast, was weaker than expected. Electronics, which make up about half the economy’s exports, are still affected by insipid global demand and supply chain disruptions linked to the earthquake in Japan.

Inflation averaged 4.8 percent over the first eight months, driven by higher food and oil prices. In response, the Bangko Sentral ng Pilipinas (BSP) raised policy interest rates and banks’ reserve requirements twice.

Net portfolio investments in the first seven months remained high, helping to push stock prices to record highs in August, but foreign direct investment remains subdued with delays in bids for planned infrastructure projects.

For 2012, increased investment — supported by upgrades in sovereign credit ratings — and resilient consumer spending will help GDP growth to pick up. Inflation forecasts are retained at 4.9 percent for 2011 and 4.3 percent in 2012, assuming that global oil and food prices moderate as expected.

“The Philippine Development Plan 2011-2016 focuses on improvements in the business environment to raise investment and employment with higher outlays on infrastructure supported by public-private partnerships,” ADB country director Neeraj Jain said. “Some of the public-private partnership infrastructure projects that have been planned must get under way to achieve the growth we forecast for 2012,” he added.

The report warned, however, that if economic troubles in the United States, Europe and Japan persist or worsen, there could be considerable downside risks for the Philippines. Weaker than expected economic growth in industrial countries would hurt the prospects for exports of goods and services, inflows of remittances and investment. –Daily Tribune