Philippines growth projection raised, but risks flagged

The economy could expand slightly faster than initially expected amid slow inflation, higher government spending, and robust services, the United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) said in a new report, which at the same time pushed for regulatory reforms to make growth more inclusive. In its latest Economic and Social Survey of Asia and the Pacific 2015 report that was released yesterday, the regional development arm of the UN said the country’s gross domestic product (GDP) could grow by 6.5% in 2015, a tad faster than the 6.4% estimate it had tipped last January.

If realized, the latest forecast would be an improvement from the 6.1% growth clocked in 2014, but remains below the 7-8% growth target the government had set for this year and next.

For 2016, ESCAP said it expects a slight deceleration of 6.4%.

BETTER THAN REGION AND PEERS
The UN agency’s forecasts for the Philippines for 2015 and 2016 are nevertheless better than the 4.9% and the 5.1% average estimates given for Southeast Asia for the respective periods.

Comparative data also showed Philippine growth continuing to outstrip those of its peers among the five other older members of the Association of Southeast Asian Nations, though lagging behind most of the five less developed ones, except Vietnam.




“With the rebound in government spending and lower inflation, thanks to the drop in global oil prices, higher growth of 6.5% and 6.4% is projected for 2015 and 2016 respectively,” ESCAP said in the report, explaining its growth outlooks for the Philippines.

Regionwide, “[t]he near-term outlook is projected to improve, mainly underpinned by an economic recovery in Thailand and more rapid growth in Indonesia and the Philippines,” it added.

The Bangko Sentral ng Pilipinas (BSP) expects the rise in prices of widely used goods to average 2.3% this year and 2.6% in 2016 from 2014’s 4.1% -- within a 2-4% target range. ESCAP itself sees inflation averaging 3.0% and 3.2% for 2015 and 2016, respectively. Headline inflation so far averaged 2.3% as of April after easing to 2.2% that month from March’s 2.4%.

ESCAP also said it expects the government “to accelerate spending ahead of the six-month moratorium on project approvals prior to the national election in May 2016.”

UNCLOGGING BOTTLENECKS
Budget Secretary Florencio B. Abad had said at the April 7 meeting of the Development Budget Coordination Committee -- an interagency body which he heads -- that the government has moved to fix bottlenecks in the disbursement of the state budget.

On March 30, President Benigno S.C. Aquino III signed Administrative Order 46, which orders all agencies under the Executive branch to implement measures “to ensure the prompt execution of the National Government budget for... 2015.”


The government has earmarked P2.606 trillion for public spending this year and is looking at raising its budget to as much as P3 trillion in 2016.

Lower-than-programmed -- and at times even contracting -- state spending and crawling farm output sector had weighed on growth for much of 2014.

Both revenues and spending fell short of program last year, leading to a P73.09-billion deficit that missed a P266.2-billion programmed cap and which was the smallest since the P68.12-billion gap recorded in 2008.

The report cited a need to ramp up “government spending on infrastructure” which, it noted, “has been chronically low in Indonesia and the Philippines and recently missing in Thailand.”

Finally, ESCAP said the Philippines’ services sector “will continue to drive growth.”

“[I]n particular, the business process outsourcing sector is expected to generate some $25 billion in revenues by 2016, accounting for a tenth of the economy. Remittances from some 11 million overseas workers will also continue to account for a tenth of the economy,” it explained.

RISKS
At the same time, a senior ESCAP official said risks remain to Philippine economic growth despite the rosy outlook.

“There are always risks to growth,” ESCAP Economic Affairs Officer Steve L. Gui-Diby said in a press conference in Mandaluyong City, explaining that “[s]low economic recovery of trading partners is a major risk.”

Mr. Gui-Diby added that a possible slowdown in remittances -- which contributed 8.5% to GDP last year -- could likewise drag the economy. “If in the countries where they (overseas Filipino workers) are based economic recovery is slow, it will have an impact on remittances and will contribute to slowdown in consumption,” he explained.

He also reiterated that the country “needs” to develop infrastructure “to encourage private investment and reduce transaction costs.”

“In going forward, it is important to keep expanding the traditionally weak manufacturing base through regulatory reforms as well as increased public investment,” the report added.

Mr. Gui-Diby said ESCAP remains cautious, warning that if “government expenditure will decrease, it (growth) will be lower next year.”
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