ADB: PH to grow below 2014, 2015 targets

Rappler.com
The lender says growth will be tempered by rising inflation and interest rates

MANILA, Philippines – The Philippine economy will likely grow below government targets this year and the next, tempered by higher inflation and interest rates, the Asian Development Bank (ADB) said Tuesday, April 1.

In its Asian Development Outlook 2014, the Manila-based lender projected that growth would slow down to 6.4% in 2014 and 6.7% in 2015 from 7.2% in 2013.

The forecasts are below the Aquino government’s targets of 6.5-7.5% for 2014 and 7-8% for 2015.

ADB said rising inflation and interest rates would weigh on consumer spending, which accounted for more than half of the increase in the country’s gross domestic product (GDP) last year. “While private consumption will continue to benefit from remittance inflows and positive consumer sentiment, higher inflation and interest rates will likely moderate the pace of growth.” (READ: Room to keep BSP rates steady ‘narrowed’)

It added rehabilitation efforts in areas hit by natural disasters in 2013 would not have a significant impact on the economy until late 2014.

Nevertheless, ADB said its forecasts are well above the Philippines’ average growth of 4.7% from 2008 to 2012.

The improving business environment created by the Philippines’ investment grade status and gains in several global competitiveness indices is expected to support continued growth in investments.

“Positive business sentiment and increasing foreign direct investment flows bode well for [our] outlook,” noted ADB.

The manufacturing sector, it said, would perform well, underpinned by strong domestic demand and improvement in exports. Manufacturing grew 10.5% in 2013, double the pace in 2012, but still accounts for a small share of GDP and employment compared with other major economies in the region.

ADB said the construction sector would remain buoyant. Activity would be boosted by the expansion of the government’s 2014 budget for infrastructure to the equivalent of 3% of GDP. The budget would be spent for national roads and bridges, rail systems, and ports.

Growth in services, which accounted for 57% of the economy in 2013, would be driven by the performance of the business process outsourcing (BPO) and tourism sectors. BPO revenue rose by an estimated 16% to $15.5 billion in 2013, and the number of full-time employees in the industry reached 900,000. Tourist arrivals rose by 10% to 4.7 million in 2013 with revenues up by 15.1% to an estimated $4.4 billion. The government aims to attract 6.8 million tourists in 2014 and 10 million by 2016.

Challenge

“The key challenge is to find ways to turn this strong performance into employment that will help further reduce poverty and support inclusive growth,” said ADB deputy chief economist Juzhong Zhuang. (READ: As PH grows, poor left behind, jobs scarce)

Latest government data showed nearly 3 million Filipinos people are now unemployed and 7 million are underemployed. (READ: More Filipinos jobless despite high growth)

ADB said the government must increase investment in infrastructure, agriculture, education and health to create more jobs and reduce poverty.

A stronger manufacturing sector would also generate better jobs. “Manufacturing linked to agriculture would enable the poor in rural areas to rise out of poverty,” noted the bank. – Rappler.com

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