World Bank keeps 6.4% Philippine growth forecast

Poll spending, low inflation to drive growth 

MANILA, Philippines - The World Bank has kept its 6.4 percent growth projection for the Philippines this year, boosted by strong election-related spending in the first half and a generally low inflation environment.

At the same time, the lender trimmed its growth forecast for developing East Asia and Pacific region to 6.3 percent this year because of the economic slowdown in China.

In its East Asia and Pacific economic update released yesterday, World Bank said the Philippine economy is expected to grow faster from 5.8 percent in 2015 to 6.4 percent this year, before slightly easing to 6.2 percent in 2017. The forecasts were unchanged from its October 2015 report.

“The faster growth in 2016 would be driven by robust private consumption, aided by low inflation and spillovers from increased spending due to the upcoming general elections,” said Karl Kendrick Chua, senior economist of the World Bank in the Philippines.

Investments, he said, would also likely support growth as the implementation of public-private partnership (PPP) projects accelerate. Growth would slow down in 2017 as the economy normalizes after the elections cycle.

Chua said a number of risks have already been taken into consideration in coming up with these near-term growth projections. These include financial market volatilities, slower growth of remittances from oil exporting countries, uneven recovery of high income economies, the dry spell expected to prevail until the second quarter of the year, as well as the uncertainty caused by the upcoming election.

But growth prospects for the country remain positive despite these risks because of the favorable macroeconomic and policy environment of the country, said Chua.

“The country continues to benefit from solid macroeconomic fundamentals. This provides the country with the flexibility to use a range of policy tools to withstand shocks and from the weaker global environment,” he said.

The Philippines, he said, has also started laying down the groundwork for achieving inclusive growth but this needs to be sustained over a longer period before economic benefits are felt by the poor.

“Achieving this requires significant policy reforms,” he said.

World Bank country director Mara Warwick said among these key reforms are encouraging competition in business sectors that can provide better jobs for Filipinos and simplifying business regulations.

“The Philippines remains among the fast-growing countries in the East Asia Pacific region despite the challenging global environment,” said Warwick.

“In recent years, the Philippines has continued to deepen macroeconomic stability and has invested in infrastructure and services that helped vulnerable families. Looking forward, the country can make further strides in poverty reduction if it can create competition in sectors that create more and better jobs such as rice, shipping and telecommunications. It would also then be important to simplify business regulations to encourage entrepreneurs to set up shop,” she added.

Growth in developing East Asia and the Pacific, meanwhile is expected to ease modestly to 6.3 percent this year from 6.5 percent in 2015 as China “shifts to a slower and more sustainable growth.” In 2017, the region’s economy is expected to grow by 6.2 percent in 2017 and 2018.

Among the developing economies in Southeast Asia, the Philippines and Vietnam have the strongest growth prospects, both expected to grow more than 6 percent this year. China’s economy is expected to grow 6.7 percent in 2016 and 6.5 percent in 2017.

In a teleconference with East Asia and Pacific countries yesterday, World Bank chief economist for the region Sudhir Shetty said countries in the region should continue to prioritize the use of monetary and fiscal policies that reduce exposure to global and regional risks. At the same time, individual countries in the region should continue implementing structural reforms to boost productivity and promote inclusive growth.

World Bank also called on the region’s economies to reduce barriers to regional trade, to promote regional growth in the long term.