Cut growth outlook still above average

THE PHILIPPINE ECONOMY is poised to expand faster than regional averages in the next two years, according to the Asian Development Bank’s (ADB) latest projections, even as forecasts were clipped in the face of a “highly uncertain” external environment that weighed on prospects across the region.

In its Asian Development Outlook 2016, the regional lender said the Philippines is expected to grow by 6% this year and 6.1% in 2017, taking off from last year’s 5.8% and riding on a boost from spending related to the May 9 national elections that will add to historically strong household demand that contributes about 70% to gross domestic product (GDP).

“We are expecting a slight pickup to 6% growth in 2016 and 6.1% in 2017. In terms of the main drivers, the pattern is very similar to last year and the year before with strong domestic demand being the key driver,” principal country economist Sona Shrestha said in a press briefing at the ADB headquarters in Mandaluyong.

The new forecast is lower than the 6.3% the ADB had projected in December for the country.

Still, ADB principal economist Donghyun Park said such rate compares “very favorably” with that of other Asian economies, and forms part of a broad outlook downgrade across the region.

Mr. Park said the regional lender also trimmed its growth forecast this year for “developing Asia” — consisting of ADB’s 45 members — to 5.7% from 6% previously, citing key risks from a “very uncertain and difficult” global market, expected flat “growth” among industrial economies like the United States and the Euro area, as well as China’s continued economic growth slowdown.

Southeast Asian economies that are expected to grow faster than the Philippines are Cambodia (7.0% this year and 7.1% in 2017), Laos (6.8%, 7.0%), Myanmar (8.4%, 8.3%) and Vietnam (6.7%, 6.5%).

Those expected to trail the Philippines are Brunei Darussalam (1.0%, 2.5%), Indonesia (5.2%, 5.5%), Malaysia (4.2%, 4.4%), Singapore (2.0%, 2.2%) and Thailand (3.0%, 3.5%).

The Philippines is also expected to grow faster than Southeast Asia’s averages of 4.5% this year and 4.8% in 2017, as well as the 5.7% seen for “developing Asia” for both years.

For the Philippines, ADB expects continued robust household consumption this year, coupled with a sustained acceleration in government spending as seen in 2015’s second half.

These are expected to offset effects of sluggish growth among the country’s major trading partners and of the El Niño-induced drought, particularly on agriculture that accounts for a tenth of GDP and a third of the country’s workers.

“Private consumption will be the main growth driver again this year. Rising employment, higher government salaries, modest inflation and remittance inflows all point to robust consumer spending,” the report read, while flagging that household spending could “moderate” as slower economic activity in the Middle East could impact worker remittance.

Sought for comment on the ADB’s outlook, Socioeconomic Planning Secretary Emmanuel F. Esguerra said the country’s performance would depend on “how strong the domestic economy will respond” to external conditions.

“One needs to take a look at the possible… drivers that can be the source for growth or that can compensate for the slowdown of the global economy,” Mr. Esguerra told reporters in a separate press briefing in Quezon City.

“Well, you have a good number of… infrastructure projects that will kick in. The remittances have not really slowed down, they continue… That is another source. The BPO (business process outsourcing) is strong, so I mean in so far as the external market is concerned, that’s one of the areas that remains quite robust.”

The country’s economic managers expect 2016 growth to clock 6.8-7.8%, a tad slower than the 7-8% target set previously. Earlier this month, the International Monetary Fund also revised its forecast expansion for the Philippines to 6% from 6.2%.

For 2017, ADB expects Philippine growth to pick up on a recovery in global demand.

Ms. Shrestha said higher imports of capital goods, greater foreign direct investments and sustained credit growth also point to solid private sector investments for 2016, coupled with the rollout of more public works projects and big-ticket items under the government’s Public-Private Partnership program.

The economy could also draw additional lift from election-related spending leading up to the May 9 exercise.

At the same time, the upcoming polls are a source of risk to the country’s growth story, with the same ADB official citing a “degree of uncertainty” on how the next administration would address the infrastructure backlog, investment climate, human capital development and the need for more structural reforms.

“However, we do not anticipate major deviations in terms of policy in those key areas,” Ms. Shrestha clarified.

ADB also expects the country’s current account to narrow — given expectations of weaker exports of goods and slower remittance growth — but remain in surplus.

At the same time, the country’s international reserves, ample fiscal space and a muted inflation environment should provide ample buffers for the Philippines to weather external shocks.

“In all, there are risks to the outlook but strong domestic demand and fiscal and external accounts indicate that the Philippines is well-positioned to withstand external shocks,” Ms. Shrestha said.

Looking ahead, the country must work on broadening its base of economic resources by expanding the sectors of manufacturing and agriculture — which are the best-placed to provide jobs for the poor — alongside ensuring employment for the youth.

“The Philippines has a relatively young population, as half of all Filipinos last year were younger than 25 years, and the median age was estimated at 23. This offers an opportunity to raise potential economic growth, but the demographic dividend can be realized only if young people are employed in productive jobs,” the report read.

An ADB survey bared that it took roughly a year for college graduates to land jobs, while high school graduates took as long as three years to do so, resulting in a 14.4% youth unemployment rate that is more than double the national jobless rate of 5.8%. –Melissa Luz T. Lopez, Reporter, Businessworld