Philippines to Grow by 6.0% in 2015, 6.3% in 2016 on Spending Pickup – ADB

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The FINANCIAL — The Philippines will see a mild pullback in growth in 2015 before the economy bounces back in 2016 on a pickup in government spending and a likely bounce back in exports, says a new Asian Development Bank (ADB) report.

ADB, in an update of its flagship annual economic publication, Asian Development Outlook 2015, now projects gross domestic product (GDP) growth of 6.0% for 2015, down from a forecast of 6.4% in March. For 2016, growth will rebound to 6.3%, unchanged from ADB’s earlier projection. 

“After a slow start to the year we are now seeing a pickup in fiscal spending which combined with spending linked to the May 2016 elections will help lift the domestic economy,” said Richard Bolt, ADB Country Director for the Philippines. “Recently enacted reforms to improve competitiveness and to attract investment will play a key role in future growth, as will continued reforms and investments in infrastructure and other public goods.”

In the first half of 2015 growth came under pressure as manufacturing slowed, dampened by sagging demand for exports, and flat agricultural output as the El Niño weather phenomenon brought drought. Government spending fell below target, producing a small fiscal surplus. The peso came under pressure, dropping 4.6% against the US dollar by mid-September as some funds exited developing markets, including the Philippines.

At the same time, consumption and private investment remained robust, supported by higher employment, low inflation, and rising remittance inflows. Inflation ebbed to just 0.6% year-on-year in August reflecting the slide in global oil prices and soft food costs. 

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Moving forward, the pickup in government spending that began in the second quarter of 2015 should accelerate, helped by better budget execution and progress on the pipeline of public-private partnership projects. Election spending ahead of May 2016 and an expanded government budget next year will also underpin growth. 

Private investment and household consumption should continue to grow, with employment and remittances remaining robust and oil prices low, while services will remain the main growth driver led by robust business process outsourcing, tourism and retailing. Exports are likely to improve in 2016 in line with better performing industrial economies. Inflation, which has been below forecast as oil and food prices remain benign, is likely to edge up to 3% in 2016 with oil and other commodity prices seen rising. 

The main risks to the outlook are slower than expected economic growth in the major industrial economies and the PRC, and a severe El Niño which would hurt rural incomes and also impact food, water and electricity prices. 

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region.  In 2014, ADB assistance totaled $22.9 billion, including cofinancing of $9.2 billion.

 

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