World Bank retains forecasts

THE WORLD BANK yesterday maintained its 2013 Philippine growth forecast of 6.2% even as it trimmed projections for the East Asia and the Pacific region, noting continuing risks tied to global weaknesses and also the possibility of overheating.

“In the Philippines, the fundamentals remain strong, policy responses have been appropriate so far, and reform efforts by the government appear sustainable,” the bank said in its latest East Asia and the Pacific (EAP) report, where it also retained a 2014 forecast of 6.4% for the country.

The 2013 outlook for the developing East Asia was cut to 7.8% from 7.9% in December, while that for 2014 was kept at 7.6%. Projections for most economies were retained. Among the notable reductions, however, were China (down 0.1 percentage point to 8.3%), Indonesia (-0.1 to 6.2%) and Vietnam (-0.3% to 5.2%). The biggest cut involved Mongolia, down 3.2 percentage points to 13%.

Slight upward adjustments for 2013 were also bared, among them a 0.1-percentage point increase for Malaysia to 5.1% and a 0.3 hike to 5.% for Thailand.

Forecasts for the following year were largely maintained, with the exceptions including a 0.5 percentage point increase to 5.0% for Thailand, a slightly lower 0.3 gain to 5.4% for Malaysia and a 0.1 cut to 6.5% for Indonesia.

“Our growth forecasts for EAP for 2013 and 2014 are roughly similar to those we made in December last year,” the World Bank said.

It noted that external headline risks were similar to those of previous years, “but the probability that the worst-case scenarios will materialize has declined.”

Subsidiary risks, however, have arisen from policy responses implemented by advanced economies, particularly with regard to asset booms arising from portfolio flows — a 56% gain by the Philippine stock market in the last 14 months was cited. Japan’s move to stimulate its economy, however, could provide some benefit to exporters such as the Philippines.

While the region’s developing economies are “generally well-prepared to absorb external shocks, an emerging concern is the risk of overheating in some of the largest economies,” the World Bank said.

These economies, which include the Philippines, could be reaching the limits of their current productive capacity, it said.

The challenge, the bank said, is for developing EAP economies to ensure that growth is “sufficiently inclusive.” With regard to the Philippines, it noted that the investment level of 20.4% of GDP was below the 27.6% median for middle-income economies. Investment efficiency was also said to have deteriorated in the past decade.

Bert Hofman, the World Bank’s chief economist for the region and a former country director for the Philippines, noted gains in infrastructure investment but also said that education reforms should be a priority.

“[S]pending more directly on infrastructure from the government budget and spending more on the preparation of public-private partnerships would accelerate infrastructure development,” he said.

“Education reforms would need to tackle not only the duration of basic education but also the quality of that education,” Mr. Hofman added.

The World Bank report noted that although the Philippines had improved its infrastructure spending to 2.4% of GDP in 2012 from the previous year’s 1.6%, further increasing such will “provide the fiscal spark that is still missing in the country’s growth path.”

Asked on actions the government could take to improve investment efficiency, Mr. Hofman said both the Philippine government and the private sector should address the issue.

“The result may also reflect the composition of the investment, which has been to a considerable amount in real estate rather than in production capacity or infrastructure … [this] does not add to productive capacity,” he said.

The World Bank’s 2013 projection falls within the government’s 6-7% target and is slightly higher than the Asian Development Bank’s (ADB) 6% forecast for the year. — with a report from Ysabel Y. Pascual, Businessworld

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