Philippines 2010 Growth Outlook Upgraded on First-Half Surge

MANILA, PHILIPPINES (Washington Bangla Radio / ADB)  - A strong and broad-based recovery during the first six months of this year will ensure the Philippines records solid growth for 2010, despite an expected moderation in the economic outlook for the next six months, the Asian Development Bank (ADB) says in a new major report.

According to the Asian Development Outlook 2010 Update (ADO Update), released today, the Philippine economy is riding on the crest of a stronger-than-expected surge in domestic investment and industrial output, helped by external demand in the January to June period. Economic growth jumped 7.9% in the first six months of the year, up from a tepid 0.9% in the same period last year. As a result, ADB has lifted its growth forecast to 6.2% this year, up from a 5% forecast made in July.

The report also forecasts growth of 4.6% in 2011, unchanged from a projection in April, when ADB launched the flagship annual economic publication ADO 2010.

“Reduced policy stimulus at home and abroad, slower growth in world trade, and higher 2010 numbers are likely to temper the growth momentum in 2011,” says Neeraj Jain, Country Director for ADB's Philippines Country Office.

In 2010, the report says, private consumption grew 5.1% largely on higher spending on food and drinks, utilities, and transportation, mainly buoyed by overseas remittances.

Investment also made a significant contribution to growth, with fixed investment as a ratio to gross domestic product rising 17.2% during the period, the highest level in 7 years. Exports jumped nearly 40%, while imports increased 28.5%, reflecting the stronger demand for capital equipment and consumer goods.

However, the growth momentum has started to ease in the second half of the year, mainly due to leveling off of inventory building by businesses.

Inflation is expected to average 4.5% this year and 4.4% in 2011. Slower economic momentum and reduced policy stimulus will offset moderate increases in global energy and commodity prices next year.

ADB cited two key challenges for the Philippine economy – improving revenue collections and the investment climate.

“The country needs to increase its revenue collection in order to support social and development spending, which have lagged for many years,” said Mr. Jain.

Enhancing tax administration remains a key focus of efforts for revenue mobilization, the report highlighted.

The Philippines also needs to upgrade its investment climate to encourage new businesses and improve employment opportunities for its people, the report said. The relatively low level of private investment in recent years has been attributed to infrastructure deficiencies, as well as to weaknesses in governance and in the policy climate.

Downside risks to growth forecasts are from uncertainty over the strength and pace of the global economic recovery and La Niña weather disturbance that could hurt agriculture. Despite balance-of-payments surpluses and substantial foreign reserves, financial markets could also become unsettled if fiscal slippage continues, raising the country’s risk premium, it added.

Asian Development Outlook and Asian Development Outlook Update are ADB’s flagship economic reports analyzing the economic conditions and prospects in Asia and the Pacific, and are issued in April and September, respectively.