PHL to lead growth despite challenges

THE ASIAN Development Bank (ADB) has maintained growth forecasts for the Philippines this year and next, expecting the country to remain among the fastest-growing markets in the region despite a marked first-quarter slowdown as investments and household consumption — buoyed by election-related spending — continue fueling economic expansion, the regional lender said in a new report.

Containers are unloaded from a ship at Tokyo Bay in this January 25, 2012 file photo. Depressed demand in major markets has continued to drag on Philippine exports, which are estimated to account for more than a third of economic growth. Japan is the top destination of Philippine merchandise exports, accounting for about a fifth of such shipments.

ADB, in its Asian Development Outlook Supplement released yesterday, still sees Philippine gross domestic product (GDP) growing at 6.4% and 6.3% in 2015 and 2016, unchanged from its forecast in March.

ADB’s forecasts for the country fall below the government’s 7-8% target for 2015 and 2016, but are just below those for China and India and top outlooks for Southeast Asia and developing Asia.

“Private investment and household consumption remain strong, however, supporting the maintenance of GDP growth forecasts of 6.4% for 2015 and 6.3% for 2016,” the regional lender said in its report.

“Election-related spending is expected to boost domestic demand through May 2016, when elections will be held,” ADB added.

The Philippine economy grew just 5.2% in the first quarter, the slowest expansion since the fourth quarter of 2011, as weak exports and government underspending weighed on the country’s overall economic performance.

“Net exports were a drag as import growth, driven by buoyant domestic demand, outpaced a modest rise in exports,” ADB noted.

ADB cited sluggish government spending due to twin Supreme Court decisions in 2013 and 2014 disallowing the use of discretionary funds such as the Priority Development Assistance Fund and the Disbursement Acceleration Program.

The same report also contained a table showing the country’s inflation projections for this year and next were maintained as well at 2.8% and 3.3% respectively. Both are higher than the central bank’s respective projections of 2.1% and 2.5%, but are still within the 2-4% target band for both years.

Actual inflation in the country averaged 2% at the end of June.

Slower inflation — partly due to depressed world crude prices — relative to last year is widely seen as a boost particularly to household spending, which the ADB had noted in its March report contributes “more than 60%” to GDP growth.

The forecasts were kept even as ADB raised its inflation outlook for Southeast Asia to 3.4% and from 3.1% this year and next, making it the only region with upward inflation adjustments.

“Upward revisions for Indonesia and Malaysia outweigh the downward revision for Thailand,” ADB explained.

While growth projections were kept, ADB cited a number of risks that could weigh on its outlook for the Philippines.

“Risks to the outlook include weaker-than-expected recovery in the major industrial economies and continued slow public spending despite government measures taken to improve budget execution,” the multilateral lender said.

ADB cut its growth projection for “major industrial economies” to 1.6% from 2.2% this year and to 2.3% from 2.4% in 2016, due to cuts for the United States.

The world’s biggest economy, which expanded by 2.4% in 2014, is now expected to grow 2.2% this year, from 3.2% initially, and 2.9% in 2016 from a March forecast of 3.0%. But projections were kept for the Euro area (1.1% this year and 1.4% next year from 0.9% in 2014) and for Japan (1.1% for 2015 and 1.7% for 2016 from -0.1% last year).

Regionally, ADB cut its growth projections for Southeast Asia to 4.6% from 4.9% in 2015 and to 5.1% from 5.3% next year due to a reduction in forecasts for Indonesia, Singapore and Thailand. –Mikhail Franz E. Flores, Senior Reporter, Businessworld