PH set for vibrant growth

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Saturday, March 28, 2015

STRONGER government spending is expected to boost Philippine economic growth this year, further bolstered by robust private consumption and a solid outlook for investment and exports, according to a new report from the Asian Development Bank (ADB).

Gross domestic product is set to pick up by 6.4 percent in 2015 and 6.3 percent in 2016, up from 6.1 percent in 2014, a year that saw restrained government expenditure in the wake of a Supreme Court ruling against certain public funds, according to ADB's annual Asian Development Outlook.

The budgeted rise in government spending to more than 18% of GDP-the biggest ratio to GDP in at least a decade-is a key factor in the outlook.


The budget boosts allocations for social services and infrastructure, and directs additional support for the development of agriculture, tourism, and manufacturing. A plan approved last October to rehabilitate areas devastated by Typhoon Haiyan will accelerate reconstruction spending.

"Factors that powered private consumption in 2014-growth in employment, modest inflation, and higher inflows of remittances-are expected to continue to support solid growth this year," said Richard Bolt, ADB country director for the Philippines. "While the economic outlook is bright there is a need to stimulate employment growth and continue efforts to address gaps in infrastructure."

Private consumption, which was the central driver of the economy in 2014, accounting for more than 60 percent of GDP growth, is projected to accelerate this year. Other positive indicators are the favorable construction prospects, forecasts of brisk motor vehicle sales, and expected growth in manufacturing output and credit.

In addition, election-related spending will boost domestic demand through May 2016, when national and local elections are held, said the report.

Inflation is projected to slow to average 2.8 percent in 2015, due largely to lower fuel prices, although a potential El Niño weather effect in the first half, along with possible power rate hikes, could put upward pressure on prices.

On export projections, improved economic prospects for major industrial economies like the U.S., which bought 14 percent of Philippine exports last year, bode well for exports and foreign direct investment.

The grant late last year by the European Union of duty-free entry to additional Philippine products should stimulate exports, as well as attract investment into products that enjoy duty-free access to the European market, destination for 11 percent of local exports.

Exports are forecast to rise faster than imports, pushing up the current account surplus in 2015 to 4 percent of GDP.

ADB also forecasts strong domestic demand to lift imports, but this will be countered by lower oil prices. In 2016, the current account surplus is projected to fall to 3.6 percent of GDP as oil prices rise.

Meanwhile, challenges to growth center on accelerating infrastructure development and advancing investment climate reforms to generate more and better jobs for poverty reduction.

ADB said the government aims to double outlays on infrastructure from 2 percent of GDP over the past decade to 4% in 2015 and further to 5 percent in 2016. It urged further progress on the government's public-private partnership program to help achieve this ambitious target.

At the same time, the paper said implementing reforms to enhance competition, improve regulatory efficiency, and reduce the administrative costs of doing business will aid in pushing up investment levels.

Downside risks are seen to come from unexpectedly weak recovery in Japan, the U.S., and the Euro area, which together take half of all Philippine exports. There is also the risk from potential power shortages in Luzon this summer.

After May 2016, the new administration's priorities and policies will have an important bearing on economic prospects, said the ADB. (PhilExport)

Published in the Sun.Star Cagayan de Oro newspaper on March 29, 2015.


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