Philippines headed for slowest growth in 4 years

MANILA, Philippines - Contraction in exports and agriculture put the Philippine economy at risk toward its slowest economic growth in four years this year before bouncing back in 2016, the Asian Development Bank (ADB) said yesterday.

Growth – as measured by gross domestic product (GDP) – is seen to expand six percent this year, the slowest since the 3.7 percent growth posted in 2011. Last year, GDP expanded by 6.1 percent.

The forecast, contained in the update to the ADB’s Asian Development Outlook, was down from March’s 6.4 percent. For 2016, growth projection of 6.3 percent was retained.

As of the first semester, growth in GDP – the sum of all products and services created in an economy – slowed to 5.3 percent. The Aquino administration has a seven- to eight-percent growth target for this year.

“All in all, growth will remains favorable. We assess that economic expansion will continue and will accelerate on the second half of the year,” ADB Country director Richard Bolt said in a briefing.

The 2015 forecast was trimmed after exports and manufacturing slowed in the first half. Bolt said “below-target” state spending was also to blame, although this is already accelerating with 13-month high growth of 25 percent in July.

For the first seven months, merchandise exports contracted 4.1 percent against a government target range of eight- to 10-percent, data from the Philippine Statistics Authority showed.

Moving forward, Bolt said growth could come from “robust” private investment activity and consumption, which is “supported by new jobs created.” Local spending could also get a boost from the upcoming 2016 elections as disbursements are frontloaded.

“Recently enacted reforms to improve competitiveness and to attract investment will play a key role in the future growth as will continued reforms and investments in infrastructure and other public goods,” Bolt said.

Within Southeastasia however, Philippine growth remains above average, the ADB report showed. The Association of South East Asian Nations (Asean) will likely expand 4.4 percent this year, similar to 2014, before rising to 4.9 percent in 2016.

“Planned increases in infrastructure investment has fallen behind schedule in both Indonesia and the Philippines. In contrast, foreign direct investments to Vietnam has been a bright spot in the region,” said Joseph Zveglich Jr., ADB director for macroeconomic research.

The bigger developing Asia, meanwhile, will also slow to 5.8 percent and six percent in 2015 and 2016, respectively. The forecasts were lowered from 6.3 percent for both years seen last March.

“There are considerable headwinds to growth in Asia although it remains the largest source of global growth. Risks to the outlook increased coming from capital flow reversals and currency depreciation although these are manageable,” Zveglich explained.

Aside from growth, the ADB also lowered its inflation forecasts due to lower oil prices that are likely to persist until next year. Within developing Asia, consumer prices are likely to rise 2.3 percent this year, and three percent in 2016. The March forecast was set at 2.6 percent for 2015.

The same inflation outlook is seen in the Philippines for both years covered by the report. As of August, inflation averaged 1.7 percent. The government has a two- to four-percent target for this year and the next.

“Risks is coming from the El Nino phenomenon which, if it intensified, could hurt food prices. The government is aware of this and has taken specific measures to address them,” Bolt said.