MANILA, Philippines—The Philippine economy is forecast to grow 4.5 to 5 percent this year given sluggish exports and other factors, the World Bank and local economists said separately.
The government target under the Philippine Development Plan was for the gross domestic product (GDP) to expand by 7 to 8 percent a year.
The Philippines’ average historical growth rate has been 5 percent, according to the National Economic and Development Authority. It said that growing at a faster clip was possible with stronger exports and increased use of opportunities, whether from domestic or foreign sources.
Given the impact of the economic slowdowns in the US and in Europe on exports, the World Bank now expected the Philippine economy would grow 4.5 percent in 2011 and 5 percent in 2012 with “strong macroeconomic fundamentals” cushioning the effects of global turmoil. The World Bank’s previous forecasts were 5 percent and 5.4 percent, respectively. Local economists said the revision was “justified.”
Benjamin E. Diokno of the UP School of Economics said that strong macroeconomic fundamentals referred to a sound banking system, strong balance-of-payments position due to a steady flow of remittances and relatively small budget deficit. However, the latter was not due to strong fiscal reform but through severe spending cuts, especially on public infrastructure, Diokno said.
“My full-year forecast for the Philippine economy is between 4.3 percent and 4.8 percent, with 4.5 percent as mid-point, this year,” Diokno said. His forecast for 2012 was 5 percent.
“The impact of the recent typhoons could tilt that forecast toward the lower end of the 2011 forecast and slightly less than 5 percent next year,” Diokno said.
“GDP for 2011 would be from 4.8 to 5.2 percent,” said Cid L. Terosa of the University of Asia and the Pacific. “I don’t think the next three months would push GDP up to 6 percent or more,” Terosa said, noting that exports, investments and government spending remained sluggish.
For 2012, Terosa said the world economy might continue to be sluggish and uncertainties would remain for investments and exports. “GDP would range from 5 to 5.5 percent next year,” Terosa said.
The economists all said that growth would depend on investment, both public and private.
The World Bank noted in its Philippines Quarterly Update (PQU) that the Philippines’ “strong macroeconomic fundamentals” were cushioning the impact of the global economic turmoil.
According to the PQU, “net foreign direct investments increased in the first half and foreign reserves have surged to record highs thanks to strong capital inflows as well as sustained growth of remittances and income from investments abroad.” The report also said that relatively higher growth prospects have attracted net foreign portfolio inflows, which soared through August at $3.1 billion, more than triple last year’s amount.
“Private consumption is expected to grow steadily, buoyed by lower unemployment, higher government spending and sustained remittances,” Yi said.
To better insulate the Philippine economy from external shocks, the government must diversify exports, promote domestic competition, and improve productivity of the services sector, said World Bank economist Soonwha Yi, who led the team that prepared the PQU.