World Bank: PH to grow over 6% in 2013, 2014

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The World Bank sees the Philippine economy growing 6.2% in 2013 and 6.4% in 2014

MANILA, Philippines – The country’s strong macroeconomic fundamentals are expected to keep the economy roaring in 2013 and 2014, giving the World Bank room to forecast a growth of above 6% in the next two years. 

In its East Asia and the Pacific Economic Update report released on Monday, April 15, the World Bank forecast the Philippines to  grow to 6.2% in 2013 and 6.4% in 2014. 

While these forecasts are lower than the 6.6% growth posted by the Philippine economy in 2012, these are higher than the Asian Development Bank (ADB) outlook of 6% in 2013 and 5.9% in 2014.

“We are keeping our outlook for the Philippines unchanged but reducing our forecast for Vietnam. In the Philippines, the fundamentals remain strong, policy responses have been appropriate so far, and reform efforts by the government appear sustainable,” the World Bank said. 

The Washington-based lender said one of the indicators that growth will be robust in 2013 is that domestic demand remains strong. In the Philippines, one indicator, construction spending, registered a 20% year-on-year increase in January 2013. 

Other indicators remain positive for the Philippines especially the recent upgrade to investment grade by Fitch Ratings. The BBB- rating received by the country applies to it’s foreign currency-denominated long-term debt.

Focus on infrastructure

Despite its rosy economic outlook on the Philippines, the World Bank urged the national government to continue investing in infrastructure and human capital. 

The bank said that in the past decade, levels of investment of middle-income countries, including the Philippines, have been below the median at 27.6% of Gross Domestic Product (GDP) in 2000 to 2011. 

The level of average investment in infrastructure and skills in the Philippines was at 20.4% of GDP in the past 10 years. Malaysia, Thailand, and Indonesia were at 23%, 26%, and 26.3% of GDP, respectively in the past decade.

“In the Philippines, lagging infrastructure development is a long-standing impediment to private investment,” the bank said. 

“Catching up on government infrastructure spending will provide the fiscal spark that is still missing in the country’s growth path, although infrastructure spending is gearing up recently: in 2012 it was equivalent to 2.4% of GDP, up from 1.6% of GDP in 2011,” it added. 

Watch Japan

The Bank said the Philippines should prepare particularly in instances when it can benefit significantly from movements with the region. One such movement is the depreciation of the Japanese yen, which will likely affect trade and investment flows in the region. 

The Philippines and Thailand are expected to benefit less from exports but are forecast to post significant gains when Japanese Foreign Direct Investments (FDIs) start pouring into the region. 

“Suppliers of parts and components to Japan in regional production networks, like Thailand (motor vehicle parts) and to a lesser extent the Philippines (electronics and machinery parts), may benefit from advances made by Japanese exporters in global markets and gain even more from potentially larger Japanese FDI,” the bank said. 

The 2012 performance

The World Bank said middle-income East Asia and the Pacific countries such as the Philippines, Malaysia, Indonesia, and Thailand led economic growth in the region in 2012 by performing beyond expectations. 

It noted that the Philippines’ consumption- and remittance-driven 6.6% performance in 2012 led economic growth in the ASEAN, from only 3.9% in 2011.  

The Washington-based lender said Overseas Filipino Workers (OFW) remittances grew 6.3% and driving private consumption to 6.1% in 2012. The bank said the number of OFWs which increased to 1.8 million in 2012 from 1.68 million in 2011.

These benefited some sectors. Indicators show car sales in the Philippines posted a 48% growth in the January to December period in 2012. 

“(Growth was) spurred by robust private consumption, a recovery in government spending, strong performance of the construction sector and of exports,” the bank said.

Challenges and opportunities

The World Bank said economies of developing East Asia and Pacific continued to be an engine of global growth at 7.5% in 2012 — higher than any other region in the world. As the global economy recovers, the report projects that regional growth will rise moderately to 7.8% in 2013 and ease to 7.6% in 2014.

“The East Asia and Pacific region contributed around 40% of global growth in 2012, and the global economy continues to rely on the region’s growth, with investor confidence surging and financial markets remaining solid,” World Bank East Asia and Pacific Vice President Axel van Trotsenburg said in a statement. 

“Now is the time for countries to focus on helping the remaining poor, with more and better quality investments to accelerate inclusive growth,” he added. 

The bank said risks emanating from the Eurozone and the U.S. have declined since the middle of 2012. The World Bank’s baseline projections for global growth are for a modest expansion of 2.4% in 2013 and a gradual strengthening to 3% in 2014. 

The challenge for policy makers now is to build on strengths and address short and long term challenges with smart policies:

  • Policymakers need to continue to be vigilant to react to shocks in the world economy, but be prepared to withdraw stimulus as the world economy recovers. For countries that show some signs of inflationary pressures, it would be a good time to rebuild policy buffers.
  • Several countries need to manage strong capital inflows by maintaining an appropriate macro policy mix, sufficient flexibility in the exchange rate and macro-prudential policies.
  • Most countries could increase productive capacity by investing in infrastructure and human capital, and thus pave the way for continued high and equitable growth.

Graph by Ramon Calzado/Rappler.com

World Bank Eap Update Full Report

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