ADB Lowers 2011 Philippine Growth Forecast on Subdued State Spending, Exports

The Asian Development Bank (ADB) slightly lowered its 2011 growth forecast for the Philippines amidst subdued government spending and exports, but said increased public and private investment should see a pickup in economic activity next year.

 

ADB trimmed its gross domestic product (GDP) forecast for the year to 4.7%, from 5.0% seen in April. Growth for 2012 is projected to pick up to 5.1%, with brighter prospects seen for investments, which since 2010 have been a major contributor to GDP growth.

 

“Job creation remains lackluster, with the youth unemployment rate more than double the overall jobless rate,” says ADB Chief Economist Changyong Rhee. “Further increases in investment along with policy and governance reforms are needed to boost jobs.”

 

State spending fell back in the first half of 2011 after high election and typhoon-linked outlays in 2010 with government agencies taking a more cautious stance amidst an anti-corruption drive. 

 

However, private investment grew strongly, while private domestic consumption also increased, supported by a firmer labor market and remittances from overseas workers. Merchandise export growth, in contrast, was weaker than expected. Electronics, which make up about half the economy’s exports, are still affected by insipid global demand and supply chain disruptions linked to the earthquake in Japan.

 

Inflation averaged 4.8% over the first eight months, driven by higher food and oil prices. In response, the central bank raised policy interest rates and banks’ reserve requirements twice. Net portfolio investments in the first seven months remained high, helping to push stock prices to record highs in August, but foreign direct investment remains subdued with delays in bids for planned infrastructure projects.

 

For 2012, increased investment―supported by upgrades in sovereign credit ratings―and resilient consumer spending will help GDP growth to pick up. Inflation forecasts are retained at 4.9% for 2011 and 4.3% in 2012, assuming that global oil and food prices moderate as expected.

 

“The Philippine Development Plan 2011-2016 focuses on improvements in the business environment to raise investment and employment with higher outlays on infrastructure supported by public-private partnerships,” says Neeraj Jain, Country Director for ADB’s Philippines Country Office.

 

“Some of the public-private partnership infrastructure projects that have been planned must get under way to achieve the growth we forecast for 2012.”

 

The report warns, however, that if economic troubles in the United States, Europe and Japan persist or worsen, there could be considerable downside risks for the Philippines. Weaker than expected economic growth in industrial countries would hurt the prospects for exports of goods and services, inflows of remittances and investment.

 

A lack of progress on the government’s reform efforts, including public-private partnerships, would also erode investor sentiment.

 

 

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