ADB hikes Philippine growth forecast

MANILA, Philippines - The Asian Development Bank (ADB) on Wednesday upgraded its growth forecast for the Philippines, citing booming investment and consumption as key factors to the country's economic renaissance.

The multilateral financial institution revised its 2013 gross domestic product forecast for the Philippines from 6 percent in April to 7 percent. For 2014, growth was revised to 6.1 percent from the previous projection of 5.9 percent.

The Philippine economy grew by 6.8 percent last year and 7.6 percent in the first half of 2013, on the back of election spending, strong investment in construction and expansion in the services sector, ADB said.

"The economy is riding high on the back of hefty domestic demand and investment, low inflation and interest rates, buoyant remittance flows, and upbeat business sentiment,” ADB Country Director for the Philippines Neeraj Jain said.

He added, however, that the economic boom in the country is not translating to more jobs, as 3 million people are unemployed and 7.3 million are underemployed.

The bank said job generation in the past two years has fallen short of the official goal of adding 1 million new jobs a year.

"Services cannot absorb all job seekers, and with employment in manufacturing declining over the past two decades, there is pressure to reinvigorate the sector so more work can be created for semi- or unskilled workers," ADB said.

It added that the government needs to upgrade its infrastructure and improve governance, as well as create plans with the private sector to develop niche market industries in manufacturing and agribusiness.

"Looking ahead, the same drivers will continue to fuel economic activity, supported by the benign inflation and interest rate environment, ample liquidity and a rise in government spending. At the same time the authorities will need to keep a close eye on credit conditions with the possibility of a central bank tightening of monetary policy next year. Strong domestic demand and a weaker peso may put some upward pressure on inflation in 2014," ADB said.

It added that the Philippines is poised to weather the possible effects of the United States Federal Reserve's tapering of its quantitative easing policy, which will see an exodus of capital from emerging markets.

"The Philippines is well placed to withstand any volatility with its current account firmly in surplus and high foreign exchange reserves. Its external debt as a share of GDP is also on a downtrend and the banking sector is healthy, with strong capital adequacy ratios and low levels of non-performing loans," it said.