ADB: Growth goal attainable

By ANGELA CELIS

The Asian Development Bank made an upward revision in its 2012 economic growth forecast for the Philippines, to 5.5 percent from its earlier projection of 4.8 percent due to the economy’s strong first half performance.

In its update of the Asian Development Outlook for 2012, the ADB said  it revised its forecast for the Philippines from its earlier outlook last April as it took into account the higher-than-expected outcome in the first half and the more moderate growth projected for the second half.

The ADB’s forecast for 2012 is well within the government’s full year target of 5 to 6 percent.

Citi, one of the largest banks in the world, earlier reported that the Philippines can attain its growth target of 5-6 per cent for the current year.  It sees the growth at between 5 and 5.3 per cent.

In the first semester, the Philippine economy expanded by 6.1 percent. The ADB said that the growth was supported by strong private consumption, a rebound in government spending, higher fixed capital investment, and positive net exports of goods and services.

“Private consumption will continue to grow, though at a slightly slower rate in the second half of 2012 because remittance inflows have moderated,” the ADB said.

“Remittances should pick up in 2013, in line with the anticipated improvement in the global outlook. Moderate inflation projected through the forecast period will support growth in consumption,” the report said.

Lower forecast

The ADB’s inflation forecast for 2012 was 3.5 percent, which was revised from the earlier outlook of 3.7 percent for the full year.

The agency said that investment is expected to remain robust, as suggested by the higher imports of capital goods and bank lending and by commitments to public infrastructure.

“Rising public investment will likely continue, though the pace of increase is seen decelerating from the fourth quarter of this year because it was in late 2011 that the government started to pump up public investment,” the report said.

For 2013, the ADB maintained its growth forecast for the Philippines, which is at 5 percent.

The report said that the impact of the 2012 rebound in government spending will fade in 2013.

“Net exports will likely weigh on GDP growth, as more is seen to be spent on imports than what the export sector may earn”, the ADB said.

The report added that infrastructure investment projects under the Aquino administration’s Public-Private Partnership Program should finally gather momentum next year, after a slow start.

“Growth in private consumption and investment will fuel the expansion of services through 2013. BPO is expected to maintain solid growth; export revenue from this industry climbed from $4.8 billion in 2007 to $11 billion in 2011 and is projected to grow by 20 percent annually through 2016,” the ADB said.

Tourism

The agency added that tourism will gain from investments in provincial airports and other infrastructure projects. Construction will also benefit from public infrastructure spending.

“Manufacturing, while drawing support from robust domestic consumption, is being buffeted by the external headwinds. A modest recovery in major export markets will provide a lift to manufacturing next year,” the agency said.

The ADB also said that there is room for further policy support for economic growth, if required.

“Modest inflation (well within the central bank’s 3 to 5 percent target range), a strong external position, and an appreciating currency suggest that monetary policy can stay accommodative, at least in the near term,” the report said.

Next year, the ADB’s inflation forecast is 4.1 percent, as there is expectation of higher prices for imported food, as well as sustained growth in domestic demand.

“But softer demand from industrialized countries than forecast in the report could undermine export and investment prospects for the Philippines,” the ADB said.

The agency said that risks to the economic forecasts come mainly from global economic uncertainty.

Threats

“Weaker-than-expected growth in industrial countries and the PRC (People’s Republic of China) would hurt prospects for exports, investment, and remittances,” the ADB said.

The agency added that further delays affecting PPP projects would “dent investor sentiment.”

“Increased business confidence bodes well for investment and future jobs,” ADB Chief Economist Changyong Rhee said.

“But the Philippines must guard against weaknesses outside its own economy that could have a knock-on effect,” Rhee added.

While the ADB has positive expectations for the Philippine economy, the agency said that the key challenge of the country is how to link the economic growth to poverty reduction.

“GDP growth has accelerated to average 4.7 percent since 2000, but job generation remains inadequate, reflected in fairly rigid rates of unemployment, growing underemployment, and the continuous deployment of workers overseas,” the ADB said.

“The key challenge is to link economic growth to poverty reduction. 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,” Neeraj Jain, ADB’s Country Director for the Philippines, said.

Jobs, skills

Early this week, National Economic and Development Authority director general Arsenio Balisacan admitted that the lack of jobs that fit the skills of the poor is a major concern that in turn may have contributed to the worsening problem of underemployment.

The country’s underemployment rate was at a six-year high in July at 22.7 percent.

“That to me says a lot about the quality of jobs that we are creating in this country. It is the single most important challenge that we face as a nation,” Balisacan said.

Meanwhile, the ADB maintained its growth forecast for the Southeast Asian region at 5.2 percent for 2012, while downgrading its outlook in 2013 to 5.5 percent from its earlier expectation of 5.7 percent.

The growth outlook for 2012 is faster than the actual expansion in 2011 in the subregion which was at 4.6 percent.

The agency said that a rebound in Thailand from severe flooding in 2011 as well as a recovery in Philippine investment in infrastructure are driving stronger growth in Southeast Asia.

Southeast Asia is the only subregion expected to achieve higher growth this year than in 2011.

Downgrade

The agency downgraded its outlook for Developing Asia, which refers to 44 developing member countries of the ADB and Brunei Darussalam which is an unclassified regional member.

The ADB’s 2012 forecast for Developing Asia is 6.1 percent, a revision from the original outlook of 6.9 percent, while it also changed its expectation for 2012 to 6.7 percent from 7.3 percent. In 2011, the region grew by 7.2 percent.

The ADB said that the deceleration in the region’s two giants-the People’s Republic of China and India—and in other major exporting economies is tempering earlier optimism.

“In the medium term, continued weakness in external demand and moderated growth in the People’s Republic of China and India mean economies in the region must diversify their growth drivers,” the ADB said.

The report said that the development of the service sector is poised to play a critical role in the region’s future growth.

“Developing Asia must adapt to a moderate growth environment, and countries will need to do more to reduce their reliance on exports, rebalance their sources of growth, and increase their productivity and efficiency,” Rhee, ADB’s Chief Economist. “These measures are critical if the region is to continue lifting its people out of poverty.”