World Bank raises RP growth forecast to 4.4%

MANILA, Philippines - The World Bank (WB) has raised its forecast for the Philippine economy, saying the country’s GDP (gross domestic product) will grow 4.4 percent in 2010, higher than its original forecast of 3.5 percent.

World Bank senior economist Eric Le Borgne said the higher growth outlook even took into consideration pressure from the European debt crisis, but a robust recovery in Asia Pacific will likely offset this impact

The Philippine government had initially forecast growth of between 2.6 to 3.6 percent this year but it is expected to be revised upwards to 4.6 to 5.6 percent after the economy rebounded with a strong 7.3 percent growth in the first quarter.

As this developed, the Cabinet-level Development Budget and Coordination Committee (DBCC) is set to adjust upward the country’s economic growth projection for the year following the stronger-than-expected first quarter performance of 7.3 percent.    

The Cabinet-level committee is set to meet on Tuesday and is scheduled to deliberate on the 5.9-6.9 percent economic growth projection proposed by the technical-level DBCC.

Before the Cabinet-level DBCC – comprising mostly of government economic managers – makes any adjustments on the country’s macroeconomic assumptions, an Executive Technical Board (ETB) discusses the possible revisions first.    

A government source said that the ETB proposed only a revision in GDP and not with the other macroeconomic assumptions.    

Government officials are optimistic of higher growth this year because of the strong first quarter growth of 7.3 percent  – the economy’s best performance since the second quarter of 2007. Officials attributed this to election-related expenses, better-than-expected trade performance and a strong rebound in factory output.     

During the DBCC meet, the source said the government took into account the recovery in exports and investments and an increase in consumption spending.

At the same time, another source said the country’s budget deficit this year may end up narrower than the programmed P293 billion on expectations that the economy would sustain its strength in the first quarter of the year.    

Because of the strong economy, the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) are expected to collect more this year, significantly higher than their respective targets of P830 billion and P275 billion.

Estimates made by the Department of Finance showed that for every one percentage point movement in GDP, there is a corresponding adjustment in revenues amounting to P13 billion.

Meanwhile, the WB has  forecast global GDP in 2010 to grow between 2.9-3.3 percent in 2010 and 2011, reversing the 2.1 percent decline in 2009. It added global growth will strengthen between 3.2-3.6 percent in 2012.

“Even as the world economic recovery continues to advance, it faces fresh headwinds on the road to sustainable medium term growth,” the World Bank cautioned in its latest Global Economic Prospects 2010.

It said that developing economies are expected to grow between 5.9 -6.1 percent each year from 2010-2012.

-High-income countries, however, are projected to grow between 2-2.3 percent in 2010 – not enough to undo the 3.3 percent contraction in 2009. It has forecast high-income nations’ economies to expand between 1.9-2.4 percent in 2011.

The WB’s projections assume that efforts by the International Monetary Fund and European institutions will stave off a default or major European sovereign debt restructuring.

But even so, developing countries with close trade and financial ties to highly-indebted high-income countries may feel serious ripple effects.