The Market Monitor Minding the Nation's Business
Citing recent economic trends, the World Bank (WB) has upgraded its economic outlook for the Philippines for the next two years and it now projects the economy to grow at 6.8 percent this year from an earlier 6.4-percent growth forecast.
It noted that growth in the third quarter of this year was “higher than expected,” with accelerating investment and private consumption growth.
“This continued the strong growth performance of the Philippines economy in the first half of 2016, which was driven by the government’s pre-election stimulus,” the international lender noted.
“Recent economic trends illustrate the high confidence among investors and consumers, and provide the foundation for a more optimistic outlook for the remainder of 2016 and for 2017,” Birgit Hansl, World Bank lead economist for the Philippines, said.
“The economy’s strong performance in October and November, and continued policy commitment to an increase in public-infrastructure spending are expected to carry the economy’s growth momentum over to 2017-2018.”
The World Bank also revised upwards its growth projection for next year to 6.9 percent, compared with its October forecast of 6.2 percent. In 2018, the economy is expected to expand at 7.0 percent, it added.
Earlier this month, the Asian Development Bank (ADB), in its Asian Development Outlook Supplement (Ados) gave the Philippines the biggest upgrade in its growth forecasts for the region this year and 2017.
Gross domestic product (GDP) growth forecasts were raised for this year to 6.8 percent from a previous 6.4-percent estimate and to 6.4 percent from 6.2 percent for next year.
The ADB said it raised the forecast on the local economy after the stronger-than-expected gross domestic product (GDP) growth at 7.1 percent in the third quarter.
The ADB noted that among the biggest contributors to economic growth was investment, both public and private. An increase in investments mirrors the high level of confidence of the business sector on the current administration, it said.
The ADB said domestic demand was partly supported by election-related spending. Net exports dragged on growth, though only to lesser extent in the third quarter as exports improved, it added.
The WB also said growth in capital investment is projected to remain the economy’s primary growth engine.
Despite an expected increase in interest rates in 2017, monetary policy is expected to remain supportive of growth, resulting in continued expansion in credit.
The implementation of large infrastructure investments is projected to lead to significant spillover effects into consumption growth next year.
Accompanied by robust credit growth to households and healthy remittances, this is expected to fuel consumption, it said.
As the global economy is slowly adjusting, with the growth momentum shifting away from advanced economies back toward emerging markets and developing economies, Philippines exports are expected to grow in 2017 at a similar rate as in 2015-2016, the WB said.
Remittances remain a key growth driver as both personal and cash remittances reached their highest levels so far. Personal remittances from overseas Filipinos (OFW) grew in September by 6.3 percent year-on-year, reaching the highest monthly level in 2016 so far, of $2.6 billion (while these amounted to $22.1 billion in the first three quarters of 201—a 4.7-percent increase compared to the same period in 2015). Likewise, cash remittances reached their highest monthly level in September (growing by 6.7 percent year-on-year), reaching $20 billion on a cumulative basis in the first nine months of 2016, which is 4.8 percent higher than in the same period a year ago.
The WB added that in October, manufacturing activities continued to expand, pushing utilization levels near full capacity.
The banking system continues its expansion through strong credit growth, and Philippines banks received a stable outlook rating from Fitch Ratings on December 8, it added.
The fiscal balance weakened in January-October as expenditure growth continued to outstrip revenue growth.
The ADB, in its earlier review of the economy, however, warned that
brisk growth is expected to ease, as the impact of spending for the May elections fades, and in light of global economic uncertainties.
In 2017, domestic demand will continue to underpin economic growth, it added.
The overall revisions of ADB through all regions globally were on a downtrend, with developing Asia’s growth outlook remaining stable but with a slight downgrade.
“The region is now expected to grow this year by 5.6 percent, or 0.1 percentage points off the rate envisaged in the Asian Development Outlook 2016 Update as slower growth is now expected in India, one of the region’s largest economies,” the ADB said.
By subregion, growth forecasts were revised slightly down for South Asia in 2016 and the Pacific in 2017, but otherwise unchanged.
The combined growth forecast for the major industrial economies—the United States, the euro area, and Japan—was also revised higher from previous projections as third-quarter outcomes in the US and the euro area proved to be stronger than expected.
“Robust consumer spending growth supported the US economy, while supportive monetary policy and improving labor markets fueled growth in the euro area. Despite a stronger yen, the external sector still led the expansion in Japan,” the ADB added.