World Bank cuts Phl economic growth forecast

MANILA, Philippines - Slower government spending prompted the World Bank to revise downward its 2014 economic growth forecast for the Philippines.

In its latest Philippine Economic Update, the WB brought down its forecast for the country’s growth in 2014 to six percent from an earlier projection of 6.4 percent.

“For 2014, we are revising growth projections… given the slowdown in government spending in the third quarter and limited opportunities to raise government spending in the fourth quarter,” Rogier van den Brink, lead economist at the World Bank, said in a briefing.

Latest government data showed economic growth decelerated to 5.3 percent in the third quarter from 6.4 percent in the second quarter. This brought the nine-month growth to 5.8 percent, way below the government’s 6.5 to 7.5 percent target.

For this year and the next, the World Bank expects the economy to expand by 6.5 percent.

The bank’s growth forecast for this year is lower than an earlier estimate of 6.7 percent made last October and below the government target range of seven to eight percent for 2015.

Van den Brink warned “these growth projections hinge primarily on the ability of the government to fully implement the budget and the Yolanda master plan.”

“There are also other factors that could support growth and these are the positive outlook of consumers and businesses, stronger FDI (foreign direct investment) inflows, and rapidly falling oil prices,” Van den Brink said.

According to Van den Brink the declining oil prices in international markets could provide a boost to the Philippines’ manufacturing sector and also support domestic consumption.

He said the main risks to growth this year are the slowdown in government spending and further delays in big-ticket private-public partnership projects.

“Over the medium to long-term, reform lags, in particular reforms to raise tax revenues efficiently, equitably, and simply, could seriously undermine the government’s effort to double infrastructure spending to five percent of GDP and further raise education and health spending,” Van den Brink said.

On the external front, the key risks are weaker global growth and volatilities in financial markets.

Van den Brink, however, said since Philippine exports only make up 20 percent of the GDP, the country would be less affect by the slowdown in the global economy. Capital outflows that could result from financial market volatilities, meanwhile, would be mitigated by the country’s strong macroeconomic fundamentals.