For the second time this year, World Bank revised its annual growth forecast for the Philippines, citing lower demand for Manila’s exports and the impact of natural disasters on the local economy.
In its East Asia Pacific (EAP) Economic Update released on Tuesday, World Bank (WB) said that the country’s gross domestic product in 2011 would settle at 4.2 percent, lower than the previous 4.5 percent growth forecast it announced in October.
Also, GDP growth for the whole of 2012 may come in at 4.8 percent—slightly down from the 5 percent earlier projected.
Philippine exports took a beating this year following the calamities in Japan as well as the recent floods in Thailand, said Bert Hofman, WB’s chief economist for East Asia and the Pacific region.
In a briefing, Hofman said the disasters abroad affected the supply of raw materials to the country, disrupting production of local manufacturers.
But the biggest threat came from weakened demand for Philippine goods as the financial turmoil took its toll on some of the world’s most advanced countries, said Hofman, former World Bank country director for the Philippines.
Generally well-positioned
According to the EAP Update, the Philippines is generally well-positioned to cope with any new financial shock that may arise from the current global turmoil, “owing to a significant improvement of macroeconomic fundamentals and regulatory reforms already in place following the Asian financial crisis of 1997-98.”
As before, private consumption is expected to be buoyed by remittances.
Hofman noted that remittances from overseas Filipino workers remained healthy and would continue to hold up. This is because most overseas workers are in healthcare, accountancy and other sectors that are less recession prone.
The report said the Philippines would need to improve productivity and boost investments in key sectors, such as infrastructure, education and social protection in order to sustain a growth rate of above 5 percent.
“In the Philippines, the quality of urban and rural infrastructure is a major constraint, including roads, ports and airports,” said World Bank acting country director Chiyo Kanda. “It’s in this context where the country’s program to attract investments in infrastructure development becomes even more important.”
The country would do well to improve tax administration and policy reforms to enable the government to meet its priority spending targets, especially in infrastructure and human capital investment, he added.