ADB downgrades Phl growth outlook

MANILA, Philippines - Lower government spending, higher inflation, and monetary tightening forced the Asian Development Bank (ADB) to revise its economic outlook on the Philippines downwards.

In its updated Asian Development Outlook 2014 report, the ADB said from its earlier 64 percent growth forecast this year, it was downgraded to 6.2 percent, and further from 6.7 percent in 2015 to 6.4 percent.

Consumer spending would remain fuel for growth, sourced from strong remittances from overseas Filipino workers (OFW) despite a lower rate of increase of 5.3 percent in the second quarter of 2014 as compared to the average six percent in the preceding three quarters, the report said.

Private investments, however, remain active as foreign direct investments (FDI) jumped 77 percent in the first semester of the year to $3.6 billion. However, it is still one of the lowest by regional standards, the ADB noted.

Earlier, Standards & Poor and Rating & Investment of Japan raised their credit ratings on the Philippines to BBB from the minimum investment grade BBB minus. Meanwhile, Fitch and Moody’s retained their respective investment grade ratings.

But the ADB report said there are still a lot of “pressing national challenges.”

“The most pressing national challenges are to improve infrastructure, attract more investment to generate better jobs, and further reduce poverty, which at 24.9 percent in the first half of last year, down three percentage points from the same period in 2012,” it said.

Job generation is insufficient despite strong gross domestic product (GDP) growth averaging 6.3 percent since 2010.

Underemployment remains high at 18.3 percent of those employed because new jobs are largely part time or informal.

“A stronger manufacturing sector as well as further expansion of tourism and other service industries would create more and better-paid employment,” the ADB said, adding that manufacturing currently provides only 8.3 percent of all jobs.

Fixed investment has increased in recent years and was 20.9 percent of GDP in the first half of 2014, but this still trails peer economies in Asia.

Accelerating infrastructure development, especially in the regions, would support productivity, job creation and poverty reduction, it said.

Recent policy changes to stimulate investment include liberalizing aviation policy, opening further to foreign banks, and implementing road?maps for manufacturing sector development.

The government plans policy to strengthen competition, enhance the regulatory framework for public–private partnership, further develop capital markets, and increase access to finance.

The ADB said that such initiatives could make the country?more competitive, support small and medium-sized enterprises (SMEs), raise investment in the regions, especially in the south, and help it prepare for sub-regional economic integration.

Meanwhile, the ADB forecasts inflation will slightly increase to 4.4 percent this year (highest in the past three years) from the earlier 4.3 percent, and to 4.1 percent in 2015 from its original four percent.

Current account balance as a share of GDP is expected to shrink to 3.2 percent this year from the earlier 3.4 percent, and to 2.8 percent in 2015 from the previous outlook of 3.2 percent.

“This update nudges up forecasts for inflation owing to the higher outturn in the first eight months, expected dry weather from El Nino that could hurt food production late this year, and pending petitions from increases in utility charges,” the ADB said.