Gross domestic product (GDP) growth of the Philippines will remain strong in 2017, driven mainly by public and private investment, says a new Asian Development Bank (ADB) report.
In its new Asian Development Outlook (ADO) 2017, ADB projects Philippine GDP growth to moderate as commodity prices rise and economic indicators normalize following spillover effects of election spending last year. The economy is projected to grow at 6.4% in 2017 and accelerate to 6.6% in 2018 as the government ramps up public infrastructure investment. ADO is ADB’s flagship annual economic publication.
“The Philippines is in a sweet spot for economic growth. The biggest contributor to growth is investment, both public and private, exceeding the growth contribution from consumption,” said Richard Bolt, ADB Country Director for the Philippines.
“Effective implementation of the government’s newly announced development plan will help make growth more inclusive and reduce poverty.”
The Philippines’ strong economic growth in 2016 was largely due to the country’s consistently strong domestic demand, further lifted by spending in last year’s elections.
The ratio of fixed investment to GDP reached 23.8% last year, the highest in over a decade. Private consumption — comprising nearly 70% of GDP — grew by 6.9% last year due to higher employment rates and steady inflows of remittances reaching $29.7 billion.
Growth in public spending
Public spending also grew 8.3% with increased expenditure on social programs, including the conditional cash transfers, which reaches 4.4 million poor families in the country. Services, meanwhile, expanded by 7.5% and industry registered an 8% growth last year.
Consumer price inflation remained modest, averaging 1.8% last year, and well under the 2% to 4% target by the Bangko Sentral ng Pilipinas (BSP) — the country’s central bank.
The country’s external payments position remained strong as external debt continued to decline to 24.6% of GDP in 2016 from 59.7% in 2005.
Moving ahead, ADB expects growth to slightly moderate then pick up next year as investment gains ground, particularly public infrastructure. Services — including business process outsourcing (BPO) and tourism — will remain a growth driver, while inflation will likely edge up but remain within the BSP target of 2% to 4%.
Investor sentiment also remains broadly positive although businesses are exercising caution amid rising oil prices, Philippine peso depreciation, and global uncertainties.
The report notes risks to the growth outlook including a lower-than-expected growth in the Philippines’ major trading partners and uncertain trade policies in industrial economies. Meanwhile, the successful implementation of the government’s development plan from 2017-2022 will be crucial.