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ADB ramps up growth forecast

In another vote of confidence on President Duterte’s economic program, the Asian Development Bank (ADB) scaled up its growth forecast on the Philippines to 6.7 percent this year and 6.8 next year from earlier estimates of 6.5 percent and 6.7 percent expansion previously, the ADB’s Asian Development Outlook Supplement (ADOS) showed.

“This outlook assumes that growth in the government’s infrastructure program will accelerate, supported by improvements in budget execution, with more large investment projects under way,” the ADOS said.

The ADOS showed that the Philippines will remain having the fastest growing economy in the region for the next two years, followed by Vietnam.

It said East Asia’s growth projection is raised from six percent to 6.2 percent for 2017 on upward revisions for its larger economies.

The forecast remains at 5.8 percent for 2018 as growth in most economies moderates.

In the People’s Republic of China (PRC), the growth forecast for 2017 is revised up to 6.8 percent from 6.7 percent “in light of expansion faster than anticipated in the third quarter, and despite broadly expected moderation in the fourth quarter.”

It added economic growth in Southeast Asia is picking up faster than forecast in September.

Gross domestic product (GDP) for the region is now seen to expand by 5.2 percent in 2017 and 2018.

“The subregion is benefiting from robust investments and exports. Growth forecasts are revised up for Brunei Darussalam, Malaysia, the Philippines, Singapore, Thailand, and Vietnam,” it said.

The Philippine economy expanded by 6.7 percent in the first three quarters on accelerating investment and robust consumption, according to the ADB.

Public expenditure accelerated, particularly for infrastructure. The government is on track to achieve its target of spending 5.3 percent of GDP on public infrastructure this year.

Meanwhile, household consumption remained strong despite moderating slightly from last year. Net exports turned positive in the first 9 months, reversing a deficit in 2016.

On the supply side, services generated nearly 60 percent of GDP growth, spurred largely by trade, business process outsourcing, finance, and real estate services.

Manufacturing contributed about 30 percent of the expansion in GDP, with food processing a major contributor.

Finally, agriculture recovered from a dry spell last year under El Niño.

The government revised upward its figure for actual GDP growth in the second quarter to 6.7 percent with adjustments to finance, construction, real estate, and business process outsourcing.

It added Cambodia, Indonesia, the Lao People’s Democratic Republic, and Myanmar are on track to meet growth forecasts for 2017.

Infrastructure investment continued to play important roles in Indonesia, the Philippines, and Thailand, it said.

It added that private consumption aided by benign inflation has provided strong support to most subregional economies in 2017.

The Indonesian economy grew by 5.1 percent in the third quarter up from five percent in the first half of the year, as investment, external trade, and government consumption strengthened.

Growth in investment accelerated to 7.1 percent in the third quarter from 4.2 percent in the same period last year, supported by higher allocations for public infrastructure and stronger growth in investment, both foreign and domestic.

Net external demand contributed 0.7 percentage points to third quarter growth as commodity prices improved and export markets recovered.

Government consumption expanded by 3.5 percent in the third quarter after contracting earlier in the year. On the supply side, business services and information and communication services posted strong growth, while growth in agriculture and mining remained subdued, it added.

Public and private investments are expected to boost growth in the remaining quarter of 2017, with business sentiment remaining positive and the government poised to accelerate infrastructure spending.

With ongoing reform to improve the business climate, including amendments to licensing and electronic tax administration, investment should continue to accelerate in 2018, it added.

According to ADOS, downside risk is a shortfall in government revenue that could delay government expenditure, including development spending.

In Malaysia, GDP growth in the third quarter of 2017 hit its fastest pace in more than 3 years, expanding by 6.2 percent and bringing average growth in the first 3 quarters to 5.9 percent.

Growth was broad-based, led by a solid recovery in exports, particularly for electrical and electronic products. Private consumption was boosted by higher wages in an improving labor market.

The ADB said growth in the Thai economy averaged 3.8 percent in the first three quarters as private consumption expands. Private investment is showing strong signs of recovery in line with 4.3 percent growth in manufacturing production, the highest recorded in 18 quarters, it added.

Merchandise exports have been much better than earlier projected, expanding by 9.7 percent in the first 10 months.

Strengthening growth in private investment is expected to accelerate further in 2018, in line with improvement in exports and the implementation of the Eastern Economic Corridor that aims to upgrade the seaboard provinces of Chachoengsao, Chonburi, and Rayong into a leading economic zone.

Fitch also grants upgrade

Credit watchdog Fitch Ratings also handed down the two notches above investment grade rating on the Philippines as a result of the bold infrastructure and tax reform plan of President Duterte’s economic roadmap.

The upgrade placed the rating given by Fitch on the country at par with rivals Moody’s Investors Service and Standard and Poor’s Global Ratings.

Fitch said the allegations regarding the war on drugs and extrajudicial killings allegations have no effect on its assessment on the economic prospects of the country.

“There is no evidence so far that incidents of violence associated with the administration’s campaign against the illegal drug trade have undermined investor confidence,” Fitch said in a statement.

The upgrade puts the Philippines on par with Italy and ahead of Indonesia.

Fitch expects the fiscal profile to improve as a result of the government’s tax reform initiative.

The House of Representatives and Senate have passed their respective versions of the first component of a five-part comprehensive tax reform program, which may be signed into law before the year’s end, Fitch said.

“We estimate the bill to be net revenue positive, reflecting an expansion of the value-added tax (VAT) base and higher taxes on petroleum products, automobiles and on sugar sweetened beverages, which would more than offset a lowering of personal income taxes,” Fitch said in a statement.

Fitch said economic performance had remained strong, owing to “sound policies that are supporting high and sustainable growth rates”.

“Investor sentiment has also remained strong, which is evident from solid domestic demand and inflows of foreign direct investment,” it added.

The Philippine economy grew 6.9 percent in the third quarter of 2017, remaining one of the best performing economies in Asia.

Fitch added the government’s plans to boost infrastructure spending would support robust growth.

“That’s good news and (a) reaffirmation of the Philippines’ progress under Duterte,” presidential spokesman Harry Roque said of the upgrade.

Fitch forecasts the economy to grow 6.8 percent in 2018 and 2019, which it said would maintain the Philippines’ place among the fastest-growing economies in the Asia-Pacific region.

“The Philippines has also maintained fiscal policies geared towards a sustained decline in the gross general government debt (GGGD) ratio. GGGD is projected by Fitch to decline to around 34 percent of gross domestic product (GDP) at end-2017, below the ‘BBB’ median of 41.1 percent of GDP,” it added.

The recent appointment of a new central bank governor from within the Bangko Sentral ng Pilipinas (BSP) has provided continuity and supports monetary policy credibility, it said.

Fitch, nonetheless, said low government revenues has been a long-standing weakness in the country’s fiscal profile.

“Fitch estimates that general government revenues were around 18.5 percent of GDP at end-2017, compared with 28.8 percent for the ‘BBB’ median. We assume that passage of the first part of the tax package would add between 0.5 percent to 0.8 percent of GDP to central government revenues in 2018. The tax reforms would support the government’s ambitious public investment programme, and keep the central government deficit within the ceiling of 3 percent of GDP in 20

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