World Bank lifts RP growth forecast

THE World Bank on Wednesday raised its economic growth forecast for the Philippines starting this year until 2012, citing strong private and public spending as well as the recovery of global trade. In the latest issue of the Philippines Quarterly Update, the Washington-based lender revised upwards its gross domestic product (GDP) growth forecast to 4.4 percent this year from an earlier projection of 3.5 percent.

An indicator of economic performance, GDP is the amount of final goods and services produced in a country.

For the years 2011 and 2012, Philippine GDP is forecast to ease to 4 percent.

In raising its forecast, the World Bank joins the International Monetary Fund and a host of foreign financial institutions that expect the Philippines to rebound strongly from the global financial crisis.

President Aquino’s economic team earlier raised the country’s GDP growth goal this year to between 5 percent and 6 percent from the Arroyo administration’s forecast of 2.6 percent to 3.6 percent.

The World Bank’s revision was based on the Philippines’ strong first-quarter economic performance as well as on leading economic indicators.

Philippine GDP in the first quarter grew 7.3 percent, a sharp rise from the 0.5 percent in the same period last year.

The World Bank said private consumption will continue to normalize as consumer sentiment continues to improve.

“An election-driven consumption and budget cycle is observable in the Philippines . . . We therefore project consumption to remain robust in the second quarter before normalizing in subsequent quarters,” the lender said.

It said the Philippines’ growth potential could be much higher given the new administration’s strong reform and anti-corruption agenda, which the lender said could shore up business confidence.

Eric Le Borgne, World Bank senior economist, said the Aquino administration’s focus on increasing the efficiency of revenue collection and expenditures is welcome in that regard and is expected to generate important fiscal space.

“The government would need more funds for education, health, and other social programs so that marginalized sectors could equitably share in the benefits of growth in a sustainable way,” he said.

While large fiscal risks in some European countries have dampened growth prospects in that region, the global growth outlook remains favorable especially for emerging markets, including the Philippines, the economist said.

“Domestic reforms would be a catalyst for higher growth,” he said.

The World Bank also forecast dollar remittances from overseas Filipino workers (OFWs) to increase by 8 percent this year, but almost flat in real peso terms because of inflation and the peso’s appreciation.

It said that deployment of OFWs accelerated during the recent global financial crisis partly because top destinations were not as affected as the rest of the world.

While Europe’s sovereign debt problems loom as a fresh threat to the global economic recovery, improving the Philippines’ public finances will strengthen the country’s economic defenses as well as improve government spending for pro-poor programs, the lender said.

Early this year, concerns about rising indebtedness among European countries such as Greece, Spain, and Portugal generated fears that the global economy might slide back to recession and cause further difficulties in developing countries like the Philippines.

“A credible plan towards fiscal consolidation over the medium-term—along with measures to manage fiscal risks—would significantly reduce the Philippines’ exposure to the worsening European debt problems,” the World Bank said.

“Such credibility could be achieved, for example, by designing a comprehensive and multi-year reform package,” it said, adding that stronger public finances inspire confidence of the financial markets, create policy flexibility to tackle global downside risks, and boost economic growth. –DARWIN G. AMOJELAR senior REPORTER, Manila Times