Asian Development Bank's Economic Forecast on Philippines: Positive and Strong

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The Asian Development Bank (ADB) has raised the country's economic growth forecast this year due to a strong and broad-based recovery during the first six months of this year.

In its Asian Development Outlook 2010 Update, the Manila-based lender said the economy, as measured by gross domestic product (GDP) to grow 6.2 percent this year, up from a 3.8 percent forecast made in April.

The ADB said the Philippine economy is riding on the crest of a stronger-than-expected surge in domestic investment and industrial output, helped by external demand in the January to June period.

In the first six months, the country's GDP grew 7.9 percent, up from a tepid 0.9 percent in the same period last year.

The government expects GDP to grow between 5 percent to 6 percent this year and between 7 percent and 8 percent next year.

The ADB also forecasts growth of 4.6 percent in 2011, unchanged from a projection in April's ADO.

“Reduced policy stimulus at home and abroad, slower growth in world trade, and higher 2010 numbers are likely to temper the growth momentum in 2011,” Neeraj Jain, country director for ADB's Philippines Country Office said.

In 2010, the report says private consumption grew 5.1 percent largely on higher spending on food and drinks, utilities and transportation, mainly buoyed by overseas remittances.

Investment also made a significant contribution to growth, with fixed investment as a ratio to gross domestic product rising 17.2 percent during the period, the highest level in 7 years.

Exports jumped nearly 40 percent, while imports increased 28.5 percent, reflecting the stronger demand for capital equipment and consumer goods.

However, the growth momentum has started to ease in the second half of the year, mainly due to leveling off of inventory building by businesses.

Inflation is expected to average 4.5 percent this year and 4.4 percent in 2011. Slower economic momentum and reduced policy stimulus will offset moderate increases in global energy and commodity prices next year.

ADB cited two key challenges for the Philippine economy –improving revenue collections and the investment climate.

“The country needs to increase its revenue collection in order to support social and development spending, which have lagged for many years,” Jain said.

Enhancing tax administration remains a key focus of efforts for revenue mobilization, the report highlighted.

The Philippines also needs to upgrade its investment climate to encourage new businesses and improve employment opportunities for its people, the report said.

The relatively low level of private investment in recent years has been attributed to infrastructure deficiencies, as well as to weaknesses in governance and in the policy climate.

Downside risks to growth forecasts are from uncertainty over the strength and pace of the global economic recovery and La Niña weather disturbance that could hurt agriculture.

Despite balance-of-payments surpluses and substantial foreign reserves, financial markets could also become unsettled if fiscal slippage continues, raising the country’s risk premium, it added. (PNA)

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