The FINANCIAL — The Philippines will see strong growth continue in 2016 and 2017, driven by robust domestic consumption and investment, says a new Asian Development Bank (ADB) report.
In its Asian Development Outlook (ADO) 2016, ADB forecast gross domestic product (GDP) growth of 6% in 2016 and 6.1% in 2017 for the Philippines. In 2015, GDP growth was 5.8%. ADO is ADB’s flagship annual economic publication.
“While the Philippines continues to experience headwinds, including a strong El Niño weather event which has affected agriculture, as well as weak external demand, economic growth remains strong,” said Richard Bolt, ADB Country Director for the Philippines. “Sustaining this growth will require the continuation of policies that support infrastructure and human capital development, improvements to the investment climate, and better governance.”
Broad-based domestic demand underpinned growth in 2015 with private consumption, which accounted for nearly 70% of GDP, rising by 6.2% on the year. Higher employment, remittance inflows from overseas workers, and low inflation contributed to the growth in household spending.
At the same time, improved budget execution led to an increase in government expenditure, particularly on construction. Government consumption rose by 9.4%, and public construction jumped by 20.6%. A fall in net exports was a considerable drag on the economy. Lower global oil and food prices dampened inflation, which averaged 1.4% on the year.
Moving forward, the pickup in government spending that began in 2015 should accelerate this year, lifted in part by spending ahead of the May 2016 elections. The government has maintained its budget deficit ceiling at 2.0% of GDP accommodating a larger deficit than the 0.9% of GDP deficit realized in 2015.
Private consumption will be the main growth driver again in 2016, but the pace of increase could moderate. Rising employment, higher government salaries, modest inflation, and remittance inflows all point to robust consumer spending.
Buoyant imports of capital goods in 2015 and higher foreign direct investment suggest that private investment will maintain solid growth. However, lower global economic prospects indicate that exports will decline slightly this year before turning up in 2017.
Construction will continue to expand partly driven by public–private partnership (PPP) projects. Many of the 12 PPP projects awarded since 2010, involving investment of about $4 billion, are under construction. They include highways, railways, an airport terminal, and water supply facilities. Another 14 projects with total investment estimated at $12 billion are being prepared for bidding.
Risks to the outlook come from the impact on agriculture and food prices of El Niño, if it is more severe than anticipated, and weaker-than-expected growth in main trading partners. The outlook is subject to more uncertainty than usual as the outcome of the national elections will have an important bearing on policy.
The report also highlights youth unemployment as a key development challenge. While youth unemployment has declined in recent years, at 14.4% it is more than double the national unemployment rate and one in four young people are neither working nor pursuing education or training.
The country’s young population provides a window of opportunity to raise potential economic growth.
“The demographic dividend can be only be realized if the youth are in education, training or productive employment,” said Sona Shrestha, Principal Economist for the Philippines. “Overcoming this challenge should be a cornerstone of the Philippines’ development agenda for the coming years.”
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