ADB upgrades RP growth outlook to 5% this year

MANILA, Philippines – The Asian Development Bank (ADB) has upgraded anew its growth outlook for the Philippines this year to five percent, from an earlier 3.8 percent forecast made last April.

In its latest Asian Development Outlook (ADO) 2010 released yesterday, the Manila-based multilateral lender said a major factor for the upward revision was the strong 7.3-percent gross domestic product (GDP) posted in the first quarter.

The ADB, however, maintained its GDP growth outlook of 4.6 percent for 2011.

It cited the robust growth in exports, industrial production and retail sales whose momentum would likely be carried over for the rest of 2010.

 Also, ADB said it expects inflation to remain relatively benign but over the next 12 to 18 months, interest rates may have to be increased depending on exchange rate policy and the degree of fiscal consolidation.

The lender also stressed that the negative impact of the eurozone crisis would have minimal direct impact on the Philippine economy.

Likewise, the heightened inflow of dollar remittances from overseas Filipinos in the past five months is expected to increase domestic demand, further cushioning the country’s economy from any contagion, it added.

Remittances hit a total of $7.44 billion in the first five months of 2010 or 6.6 percent higher than the $6.98 billion registered in the same period last year. In the month of May alone, remittances hit a record $1.578 billion as demand likewise expanded.

This, as worker deployment went up 35 percent to 301,844 in the first five months of the year, mostly to fill up manpower requirements in Saudi Arabia, the United Arab Emirates and Taiwan.

In the same ADO report, the ADB also upgraded its growth outlook for developing Asia to 7.9 percent from an earlier 7.5 percent, yet retained its earlier 7.3-percent growth outlook for 2011 due to number of downside risks.

Developing Asia comprises 45 member countries of ADB and covers Central Asia, East Asia, South Asia, Southeast Asia and the Pacific.

Emerging East Asia is seen to expand 8.1 percent in 2010, and 7.2 percent in 2011 while the Southeast Asian region is estimated to grow 6.7 percent this year instead of 5.1 percent, before cooling off slightly to 5.3 percent in 2011.

 “ADB warns of downside risks in the second half of the year including uncertain global environment, unpredictable private domestic demand, and the risks of

dramatic capital flows and exchange rate fluctuations,” the lender said.

It warned that the danger for the Philippines and the rest of emerging Asia is the euro sovereign debt default risks, and its snowballing effect.

“The snowballing effects of far more aggressive budget tightening further sharp falls in the euro, heightened financial market volatility, and risk aversion could pose a significant downside risk to the region’s growth,” the report said.

However, it said the Philippines must rely more on domestic demand for growth and limit its exposure to the European Union.

Private consumption will remain the main driver of the economy, underpinned by robust remittances, a firmer labor market, and stronger consumer confidence. 

Higher private investment is also needed to upgrade infrastructure and more generally, the productive capacity of the economy, the ADB said.