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Philippines expected to remain among East Asia’s fastest-growing economies

Posted on January 08, 2016

THE PHILIPPINES will remain among the fastest-growing economies in East Asia and the Pacific this year, the World Bank said in its latest flagship report, citing an improvement in what had weighed on the country’s output: government spending.

In its January Global Economic Prospects report, titled: “Spillovers amid Weak Growth,” the multilateral lender affirmed its growth forecast for the Philippines this year at 6.4%.

The projection places the Philippines behind China’s 6.7% and Vietnam’s 6.6%.

The Philippines will also fare marginally better than East Asia and the Pacific’s (EAP) 6.3%, developing countries’ (excluding China) 4.8% and the world’s 2.9%.

“The Philippines and Vietnam are among the countries with the strongest growth prospects,” the report read, noting that “[g]rowth in the Philippines is expected to accelerate to 6.4% in 2016 from 5.8% in 2015 as public-private partnerships and government spending spur activity.”

In its June 2015 Global Economic Prospects report, the World Bank projected a 6.5% growth for the Philippines in 2016, but in October revised this down to 6.4%.

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The World Bank’s latest 2015 growth estimate for the Philippines is similarly down from June 2015’s 6.5% but a retention of the downgraded October estimate.

Philippine gross domestic product (GDP) grew 5.6% in the first nine months of 2015 against an official 7-8% full-year target, making a 6% full-year pace more feasible, the National Economic and Development Authority had said as the government reported third-quarter data in November.

The economic planner had then cited “significant improvements in government spending and household consumption”, particularly noting that average government final consumption expenditure grew 7.2% in the first nine months against a 0.2% contraction in 2014’s comparable period and a 1.7% increment for the entire 2014.

At the same time, however, the World Bank’s report noted that foreign direct investment (FDI) “inflows to other large EAP economies remained generally robust in the first half of the year, rising in all large countries except the Philippines in year-on-year terms”.

“In the Philippines, FDI has lagged, partly owing to regulatory restrictions,” the report noted.

Latest available central bank data show net inflow of FDI -- a key source of jobs and capital for the local economy -- fell 5.5% to $4.537 billion as of September from the $4.802 billion logged in 2014’s comparable nine months.

For 2015, the central bank expects net FDI inflows to reach $6 billion. In 2014, net FDI inflows reached an all-time high of $6.2 billion, 65.9% more than 2013’s $3.737 billion.

But Philippine inflows have constantly paled in comparison to those of most of its Southeast Asian peers.

“Slowing growth in China is expected to offset a modest pickup in growth among members of the Association of Southeast Asian Nations this year,” the World Bank said in its latest report.

“The region is expected to benefit from the strengthening recovery in advanced economies, low energy prices, improved political stability, and continued favorable conditions in global financial markets, despite anticipated monetary policy tightening in the United States,” the multilateral lender added.

“A faster-than-expected slowdown in China” was tagged as a key risk to East Asia and the Pacific’s growth outlook.

“The possibility of greater financial market volatility and restricted credit are also risks to growth,” the report added.

“A steep appreciation of the value of the US dollar and a slower-than-expected acceleration of high-income economies would also dent growth prospects in the region.”

First Metro Investment Corp., meanwhile, expects Philippine GDP to expand 6-6.5% amid uncertainties in the local financial markets and global economic weaknesses.

“We remain optimistic [about the economy], but guarded,” First Metro Chairman Francisco C. Sebastian said in an annual economic and capital markets briefing yesterday in Makati City.

The forecast, according to FMIC, reflects international developments such as the slowdown in China and local issues like government underspending.

“The faster implementation of public infrastructure projects, continuing private construction, strong domestic consumer demand, heightened election-related spending, an better exports will provide boost,” FMIC President Rabboni Francis B. Arjonillo said.

Victor A. Abola, an economist at the University of Asia and the Pacific, shared the outlook, noting: “There are a number of important factors, election spending is one of them. Secondly, the continuing low oil prices is really giving more purchasing power to the consumers.”

FMIC also expects the main index of the Philippine Stock Exchange to peak at 7,500 this year, and corporate earnings growing 13.8%. -- K. R. D. Mariano