Philippines growth to remain Asia’s fastest—WB

The Philippine econ­omy is expected to grow the fastest in the region, even bet­ter than China and next only to India, as the outlook for de­veloping East Asia is expected to remain broadly positive in the next three years, according to a new World Bank (WB) re­port.

As economies in the re­gion are driven by robust do­mestic demand and a gradual global recovery, poverty was likely to continue to fall, driven by sustained growth and ris­ing labor incomes, the just-re­leased East Asia and Pacific Economic Update stated.

The large developing economies in the Association of Southeast Asian Nations (Asean) will likely expand slightly faster in 2017- 18, although for different reasons, the report said.

The Philippines will benefit from higher public spending on infrastruc­ture, an uptick in private investment, credit expansion, and increased re­mittances, as growth accelerates to 6.9 percent in both 2017 and 2018. High­er government subsidies, more infra­structure spending and rising exports will push up Malaysia’s economy by 4.3 percent in 2017 and 4.5 percent in 2018, it added.

The global environment and do­mestic vulnerabilities, however, still pose risks to the region’s prospects. In the face of faster-than-expected inter­est rate hikes in the U.S., protectionist sentiments in some advanced econ­omies, and rapid credit expansion and high levels of debt in several East Asian countries, the report recom­mends that policy makers continue to focus on prudent macroeconomic management and ensuring sustain­able fiscal balances in the medium term.

The Philippines is likely to grow close to seven percent in the next two to three years, and will remain a top performer in the East Asia and Pacific Region, according to WB officials.

“Strong growth in recent years has been accompanied by job creation and a declining number of people liv­ing in extreme poverty,” World Bank Country Director Mara K. Warwick said. “That means growth is becom­ing more inclusive,” she added.

The Philippine economy is pro­jected to grow 6.9 percent in 2017 and 2018, and 6.8 percent in 2019.

The government’s commitment to further increasing public infra­structure investment is expected to sustain the country’s growth momen­tum through 2018 and reinforce busi­ness and consumer confidence.

“The implementation of planned infrastructure projects could generate positive spillover effects for the rest of the economy, spurring additional business activity, accelerating job cre­ation, and ultimately contributing to higher household consumption and poverty reduction. “ said Birgit Hansl, World Bank Lead Economist.

The poverty incidence among Filipinos already dropped to 21.6 percent in 2015 from 25.2 percent in 2012 which means 1.8 million Filipi­nos were lifted out of poverty within three years.

Higher employment, low infla­tion and improved incomes contrib­uted to the decline in the number of poor people.

The report also noted that sus­taining the inclusive pattern of recent growth will require an enduring com­mitment to structural reforms that fa­cilitate private investment.

This can be achieved by promot­ing greater competition, removing re­strictions to investments from other countries, simplifying business regu­lations, and protecting property rights which continue to discourage private investment.

“Underinvestment contributes to high rates of informality and low job quality, and it weakens the impact of employment growth on poverty re­duction,” according to Hansl.

The World Bank also under­scored that the newly completed Philippine Development Plan or PDP (2017-2022) strives to address many of these policy challenges.

Implementation of the govern­ment’s articulated commitments will allow the Philippines to leverage over the medium-term a number of development opportunities, includ­ing the potential for a demograph­ic dividend and using the rapidly growing services sector to increase domestic value addition and acceler­ate the creation of high-quality jobs.

Asia: World’s growth engine

WB expects the Chinese economy to continue to slow down gradually, as it rebalances toward consumption and services.

It forecasts China’s growth rate to be 6.5 percent in 2017 and 6.3 percent in 2018, compared with 6.7 percent in 2016. In the rest of the region, includ­ing the large economies in Southeast Asia, growth is expected to pick up slightly to 5 percent in 2017 and 5.1 percent in 2018, up from 4.9 percent in 2016. As a whole, the economies of developing East Asia and Pacific are projected to expand at 6.2 percent in 2017 and 6.1 percent in 2018.

“Sound policies and a gradual pickup in global economic prospects have helped developing East Asia and Pacific sustain growth and reduce poverty,” said Victoria Kwakwa, World Bank Vice President for East Asia and Pacific. “For this resilience to be sus­tained, countries will need to reduce fiscal vulnerabilities while improving the quality of public spending and fostering global and regional integra­tion,” she said.

Growth in the region will contin­ue to be driven by strong domestic de­mand, including public, and increas­ingly private, investment.

This trend will also be supported by gradually rising demand for ex­ports, as emerging markets and devel­oping economies recover.

The slow pace of recovery in commodity prices will benefit com­modity exporters in the region, but won’t unduly hurt the economies of commodity importers in East Asia.

In China, growth will continue to moderate, reflecting the impact of the government’s measures to reduce excess capacity and credit expansion. As a result, the report ex­pects activity in the real estate sector to slow down.

In Indonesia, credit expansion and higher oil prices will help the economy grow 5.2 percent in 2017, up from 5 percent in 2016. In Viet­nam, growth will rise to 6.3 percent in 2017, in line with favorable market sentiment and strong foreign direct investment.

The region’s smaller economies will generally benefit from the con­tinued vitality of their larger neigh­bors, and some will also benefit from higher commodity prices. Cambo­dia’s economy will grow 6.9 percent in 2017 and 2018, with higher public spending and the expansion of agri­culture and tourism offsetting a drop in the construction and garment sec­tors. In Myanmar, growth will reach 6.9 percent in 2017 and 7.2 percent in 2018, up from 6.5 percent in 2016, as infrastructure spending increases and structural reforms attract more foreign investment.

Papua New Guinea will see its economy gradually recover, thanks to a number of new mining and petro­leum projects. Mongolia’s economy will stagnate in 2017, as the govern­ment restores its debt to sustainable levels, but a modest recovery is ex­pected in 2018.

“Despite favorable prospects, the region’s resilience depends on policy makers taking account of, and adjust­ing to, significant global uncertainties and domestic vulnerabilities,” said Sudhir Shetty, Chief Economist of the World Bank’s East Asia and Pacific Region.

“Policy makers should prioritize measures that counteract global risks threatening the availability and cost of external finance, as well as export growth.

Efforts should also be made to strengthen policy and institutional frameworks to spur increases in pro­ductivity.”

The report calls for macroeco­nomic prudence to address the sig­nificant risks to the region’s economic prospects.

Across the region’s large econo­mies, increasing fiscal revenues can help governments finance programs that boost growth and foster inclusion while reducing risks to fiscal sustain­ability, the report says.

Some smaller commodity-ex­porting economies will need to take steps to increase their fiscal solven­cy. With rising inflation – albeit from a low level – and potentially more volatile capital flows, the report says policy makers in much of the region should consider adjusting their ac­commodative monetary policies.

In China, the report recom­mends that the government sustain its efforts to reduce corporate debt and restructure state-owned en­terprises, tighten the regulation of shadow banking and address rising household mortgage debt. Reforms to reduce excess industrial capacity could be complemented with im­proved social transfers and labor policies.

With credit growth remaining high across much of the region, including Vietnam, the Philippines and Lao PDR, the report suggests an emphasis on strengthening reg­ulation and enhancing supervision.

The longer-term challenge for the region lies in sustaining rapid growth while ensuring greater in­clusion.

Governments can address these challenges by increasing produc­tivity and investment, which have slowed recently in several econo­mies, as well as by improving the quality of public spending.

In the face of rising protection­ism outside the region, East Asia can seize opportunities to advance regional integration, including by deepening ongoing initiatives, low­ering barriers to labor mobility and expanding cross-border flows of goods and services within the ASE­AN Economic Community.

In addition, the report says pol­icy makers can put future econom­ic prospects on a more sustainable path if they take steps to reduce pollution caused by farming, a ris­ing threat amid the intensification of agriculture in the region.