MANILA: The Asian Development Bank (ADB) expects the country’s economic growth would remain robust in the next two years due to strong investment, private consumption, and the government plan to accelerate spending on infrastructure and human capital.
In an update of its flagship annual economic publication released yesterday, ADB raised the Philippine gross domestic product (GDP) forecast for this year to 6.4 percent from six percent estimate in March.
The country’s growth is seen dipping back slightly to 6.2 percent next year, but is still above the previous forecast of 6.1 percent. The Philippines has emerged as one of the fastest-growing economies in Southeast Asia, ADB noted.
“The outlook for the Philippine economy remains strong amid buoyant investment and domestic consumption,” Richard Bolt, ADB country director for the Philippines said in a statement.
“If successfully implemented, the new government’s development agenda to step up spending on infrastructure, implement tax reforms, and cut through red tape will sustain high growth rates and increase job creation,” he added. The surge in investment and consumption saw the economy expand by 6.9 percent in the first half of 2016.
Election-related spending and consumption, along with booming fixed investment from both the private and public sectors, were the key drivers, with the ratio of GDP to fixed asset investment reaching its highest level in over a decade.
Underpinning the strong performance of consumption was a rise in job creation, with the unemployment rate falling to 5.4 percent in July 2016 from 6.5 percent the year earlier, and remittances from Filipinos overseas.
Services, the largest sector of the Philippine economy, generated two thirds of the growth, with retail trade, business process outsourcing, and real estate activity leading the way, while merchandise exports remained subdued, amid still soft global demand.
Moving forward, ABD said a continuation of the strong growth will hinge on advancing the reform agenda, which includes measures to address infrastructure bottlenecks, stronger efforts to develop rural and regional areas, and enhancing transparency and accountability in government.
Fiscal policy is also expected to be expansionary in 2017, with the budget spending set to increase by 11.6 percent over this year’s level, with significant increases earmarked for infrastructure, education, health, and social protection.
“Proposed tax changes, including lower corporate and personal income tax rates, are expected to improve the business environment and underpin further growth, with any reduction in tax revenues seen to be offset by a potential broadening of the value-added tax base,” ADB said. Foreign direct investment inflows almost doubled from January to June this year from the year earlier period.
“The outlook for private investment remains favorable, particularly if the government follows through on commitments to ease the cost of doing business, address infrastructure bottlenecks, and accelerate public-private partnership projects,” the repot said.
Services, particularly retail trade, buoyant business process outsourcing industry and growing tourism, will be key growth drivers over the forecast period, with international visitor arrivals up by over 13 percent year-on-year in the first half of 2016.
Inflation meanwhile is expected to remain subdued at 1.8 percent for 2016, below the previous ADB forecast, with the impact of the drought on food prices less than anticipated. However, inflation is seen moving up to average 2.8 percent in 2017, as global oil prices and domestic demand rise.
ADB said the key risks to the outlook include weaker than expected demand from major markets for Philippine exports. Strengthening the rural economy is also key, given the higher prevalence of poverty in regions outside the main cities.
