World Bank raises Phl growth outlook

MANILA, Philippines - The World Bank has revised upwards its economic growth outlook for the Philippines, but downgraded its growth forecast for East Asia and the Pacific region.

In its East Asia and Pacific Economic Data Monitor report released yesterday, the World Bank reflected its optimism towards the Philippine economy by revising its original 4.6- percent expansion of gross domestic product (GDP) to five percent.

The World Bank’s 4.6-percent growth outlook for the Philippines is already an upward revision from its original start-of-the-year forecast of 4.2 percent, influenced principally by the remarkable 6.4-percent economic expansion in the first quarter of 2012.

The Philippines’ GDP grew 7.6 percent in 2011 from the anemic 3.9 percent recorded in 2010.

However, the World Bank projected that the economic performance of the East Asia and Pacific region (including China) would be closer to 7.2 percent this year, and a stronger 7.6 percent the following year. The region grew 8.3 percent in 2011.

Excluding China, the region is expected to grow 5.3 percent this year, and slightly better to 5.5 percent in 2013. However, the conservative growth forecast for the region is still better than the actual 4.3-percent rate in 2011.

The World Bank said that higher government spending, robust private consumption backed by strong remittances from overseas Filipinos, and strong credit growth influenced its decision to increase its positive outlook for the Philippines.

“Ample liquidity has been feeding buoyant credit growth in the Philippines and Indonesia – both countries with low credit over GDP and loan over deposit ratios - and has reignited credit growth in China in recent months,” it said.

On the fiscal side, policy actions have remained more limited in the region, it added.

“In the Philippines, the acceleration of government infrastructure spending has contributed to the strong growth performance in the first half, while revenue growth is supported by tax administration reforms as well as strong GDP growth,” the World Bank report said.

Philippine GDP expanded 6.1 percent in the first six months of 2012, better than the 4.2 percent it experienced in the same period last year. In the second quarter alone, the economy grew 5.9 percent from the 3.6 percent recorded the previous year.

The resilient services sector remained the main driver of growth, supported by the sustained growth of manufacturing and the rebound of construction due to increased public spending on infrastructure.

Last week, the Asian Development Bank (ADB) upgraded its growth forecast to 5.5 percent in 2012 from the original 4.8 percent projection. The upgrade was due to the higher-than-expected growth in the first half.

“With increased government spending and investments spurring economic activities in the second quarter, the country’s GDP sustained its growth track as it expanded by a better-than-expected 6.1 percent in the first semester,” it said.

Meanwhile, the World Bank warned that the economic projections for the Philippines and the rest of the region were surrounded by considerable uncertainties, and a variety of risks that continue to loom over the global and regional economy.

Financial market disruptions still constitute the main risk to this outlook followed by the “fiscal cliff” risk of the US.

“The Euro area crisis has already had significant impacts on developing economies. A crisis will affect the developing economies through trade and to a lesser degree to finance sector links. The so-called US fiscal cliff also poses risks of more headwinds in the global economy,” it added.

The World Bank urged policy makers in the region to manage continued growth and poverty reduction in what it described as “an external environment that will remain volatile and deliver only lackluster growth over the medium term”.

“Crisis preparedness must remain a priority. Countries that have experienced high credit growth should be particularly alert, while commodity exports should continue to take measures and build the institutions that help avoid over-reliance on commodity revenues and increase resilience to shocks in those prices,” it added.