ADB hikes economic growth forecast for Philippines

MANILA – Asian Development Bank (ADB) today raised its economic forecast for the Philippines for this year and 2014, but said job creation remains a challenge despite robust growth.

In its updated Asian Development Outlook 2013, the Manila-based lender sharply upgraded its 2013 forecast to seven percent from the six percent estimate made in April.

The ADB forecast for the Philippines is the highest in Asean and the second fastest in Asia next to China, which the lender said could expand by 7.6 percent this year. The forecasts for the other Asean countries are as follows: Indonesia, 5.7 percent; Malaysia, 4.3 percent; Singapore, 2.6 percent; Thailand, 3.8 percent; and Vietnam, 5.2 percent.

For 2014, Philippine growth could come in at 6.1 percent, higher than the previous projection of 5.9 percent, the ADB said.

“The economy is riding high on the back of hefty domestic demand and investment, low inflation and interest rates, buoyant remittance flows, and upbeat business sentiment,” Neeraj Jain, ADB country director for the Philippines said.

Citing the Philippines’ current account surplus, ample foreign exchange reserves and declining foreign debt, ADB said the country is “well-placed” to weather the volatility that may be created by the US Federal Reserve’s plan to wind down its economic stimulus.

In the first half of this year, the country’s gross domestic product (GDP) surged 7.6 percent, supported by election-related spending, construction, and the services sector, which accounted for half of growth. This year’s expansion was faster than the 6.8 percent in 2012.

Good times not translating to jobs

“However the good times are not translating into jobs with over a quarter of all Filipino workers still unemployed or underemployed,” Jain said.

Employment generation over the past two years has fallen short of the official goal of adding a million jobs a year needed to absorb new entrants into the labor force.

About three million Filipinos are unemployed and another 7.3 million don’t have enough work.

“Services cannot absorb all job seekers, and with employment in manufacturing declining over the past two decades, there is pressure to reinvigorate the sector so more work can be created for semi- or unskilled workers,” ADB said.

“This requires sustained efforts to clear obstacles to direct investment, to upgrade infrastructure, and to make improvements to governance,” it said.

The lender said the government must also step up work with the private sector to develop plans for the development of niche industries in manufacturing and agribusiness on which the Philippines could capitalize.

ADB said the Philippine government will need to keep a close eye on credit conditions with the possibility of a central bank tightening of monetary policy next year.

Strong domestic demand and a weaker peso may put some upward pressure on inflation in 2014, the lender said.

ADB projected an inflation rate of three percent for this year and 3.5 percent next year — both forecasts at the lower end of the Bangko Sentral ng Pilipinas’ (BSP) target range of 3-5 percent. –Darwin G. Amojelar, InterAksyon.com