The Philippine economy is expected to continue its strong growth in 2014 and 2015 as it reaps the rewards of improving business confidence and rising investment, says a new Asian Development Bank (ADB) report.
“While growth is forecast to slow from a very strong 2013, the economy will continue delivering well above its recent average growth rate this year,” said ADB’s Deputy Chief Economist Juzhong Zhuang.
“The key challenge is to find ways to turn this strong performance into employment that will help to further reduce poverty and support inclusive growth.”
In its flagship annual economic publication, Asian Development Outlook 2014 (ADO), ADB projects annual gross domestic product (GDP) growth for the Philippines of 6.4% for 2014 and 6.7% for 2015.
The economy grew 7.2% in 2013, above the average growth of 4.7% in 2008-2012.
While private consumption will continue to benefit from remittance inflows and positive consumer sentiment this year, higher inflation and interest rates will likely moderate the pace of growth in consumer spending, according to ADO. Private consumption grew 5.6% in 2013 and accounted for more than half of the increase in GDP.
Rehabilitation and reconstruction in areas hit by natural disasters in 2013 may not have a significant impact on the economy until late in 2014 and 2015, the report says.
The improving business environment created by the achievement in 2013 of investment grade sovereign credit ratings and gains in several global competitiveness indices is expected to support continued growth in investment. Positive business sentiment and increasing foreign direct investment flows bode well for the outlook.
Job creation remains a critical challenge. Government data show nearly 3 million people are unemployed and an additional 7 million are underemployed. To raise employment and reduce poverty, particularly in rural areas, the government is responding with an increase in public investment in infrastructure, agriculture, education, and health. Improving revenues have supported higher spending, particularly in infrastructure.
The manufacturing sector will perform well, underpinned by strong domestic demand and an improvement in exports as demand picks up in the United States and the euro area. Manufacturing grew 10.5% in 2013, double the pace in 2012, but still accounts for a small share of GDP and employment compared with other major economies in the subregion. A stronger manufacturing sector would generate more and better jobs, and manufacturing linked to agriculture would enable the poor in rural areas to rise out of poverty, ADO says.
The construction sector is forecast to remain buoyant. Activity will be boosted by the government’s expansion of its 2014 budget for infrastructure to the equivalent of 3% of GDP for projects such as constructing national roads and bridges, rail systems, and ports.
Growth in services, which accounted for 57% of the economy in 2013, will be driven by expansion of the business process outsourcing (BPO) sector and tourism. BPO revenue rose by an estimated 16% to $15.5 billion in 2013, and the number of full-time employees in the industry reached 900,000. Tourist arrivals rose by 10% to 4.7 million in 2013 with revenue up by 15.1% to an estimated $4.4 billion.
The government aims to attract 6.8 million tourists in 2014 and 10 million by 2016.