The Asian Development Bank (ADB) has upgraded its growth forecast for the Philippines this year, a marked contrast from the projected slowdown in other developing economies in Asia.
In its latest Asian Development Outlook 2012, the Manila-based financial institution raised the gross domestic product (GDP) growth forecast for the Philippines to 5.5 percent in 2012, from the original 4.8 percent projection last April.
The ADB said the upgrade took into account the higher-than-expected growth in the first half and more moderate growth seen in the second half.
With increased government spending and investments spurring economic activities in the second quarter, the country’s GDP sustained its growth track as it expanded by a better-than-expected 6.1 percent in the first semester.
The government is targeting a 5-6 percent GDP growth for the whole of 2012.
“Robust private consumption and a rebound in government spending drove economic growth higher than expected in the first half of 2012, prompting an upward revision of the forecast for the full year,” the ADB report said.
However, the ADB said it is sticking to its five percent GDP growth target for 2013.
“The impact of the 2012 rebound in government spending will fade in 2013 (though capital spending will increase) and net exports will likely weigh on
GDP growth, as growth in imports is projected to outpace that for exports,” the report said.
The ADB also noted that upgrades in indicators of competitiveness and sovereign ratings show improvements in the investment environment in the Philippines.
But the ADB warned the uncertainty in the global economy may hurt the Philippines’ economic forecasts.
“Weaker-than-expected growth in industrial countries and the PRC (China) would hurt prospects for exports, investment, and remittances. Further delays affecting public–private partnership projects would dent investor sentiments,” it said.
“Increased business confidence bodes well for investment and future jobs. But the Philippines must guard against weaknesses outside its own economy that could have a knock-on effect,” ADB chief economist Changyong Rhee said in a statement.
“The key challenge is to link economic growth to poverty reduction. Despite solid economic growth, job generation remains inadequate, reflected in rates of unemployment and underemployment. The incidence of poverty remains high at 26.5 percent in 2009, compared to 26.4 percent in 2006 and 24.9 percent in 2003,” said Neeraj Jain, ADB country director for the Philippines.
Meanwhile, the ADB cut most of its 2012 and 2013 growth estimates for developing Asia as a slump in global demand weighs on the region’s powerhouses China and India and on its other export-dependent economies.
The ADB cut its GDP growth estimate for China by nearly one percentage point to 7.7 percent from the previous 8.5 percent, warning that risks to the world’s second-largest economy were likely to intensify in the short run given bleak global demand and the uncertain outlook for its largest trading partners.
But it believed China would still be able to avoid a hard economic landing, given that policymakers in Beijing have considerable scope for further stimulus measures.
“The global slump in demand, especially from Europe, will remain a serious drag on growth in the near term,” it said.
The euro zone’s unresolved sovereign debt crisis and the United States’ looming fiscal cliff were the biggest risks to the regional growth outlook, with Asia’s most open economies particularly vulnerable to spillover effects, the ADB warned.
The risk of rapid reversals in capital flows to developing Asia also remained a concern, although the region’s capital markets have not shown excessive volatility, it added.
Developing Asia – comprised of 45 countries in Central, East, South, and Southeast Asia and the Pacific – is now forecast to grow 6.1 percent this year and 6.7 percent in 2013.
The figures are substantially slower than April estimates of 6.9 percent and 7.3 percent respectively, and last year’s 7.2 percent expansion.
East Asia will remain the region’s fastest-growing area, although it will not be immune to the overall deceleration in the region, the ADB said.
The bank kept its 2012 growth forecast of 5.2 percent for Southeast Asia, lifted in part by recovery efforts in Thailand from last year’s flooding, and higher state spending in Malaysia and the Philippines.
The ADB urged Asian economies to diversify their growth drivers and capitalize on its booming service industries, as seen in India and the Philippines, to sustain domestic growth during times of prolonged weakness in external demand.
(Story courtesy of Ted P. Torres of the Philippine Star)