The Asian Development Bank (ADB) has downgraded its growth forecast for the Philippines this year, mainly due to the failure of the government to deliver on its promise to ramp up infrastructure spending at the start of 2015.
In its Asian Development Outlook (ADO) Update, the ADB said the Philippine economy will likely post a growth of 6 percent this year, slower than its earlier 2015 forecast of 6.4 percent.
For 2016, however, the ADB maintained its full-year growth forecast of 6.3 percent. This will be largely fueled by election spending for the presidential polls slated in May next year.
“Household consumption accelerated in the first half, driven by higher employment, low inflation and rising remittances. Private investment also rose, but government spending was sluggish early in the year before rebounding,” the ADB said. However, the growth estimates of the ADB still depend on the impact of several threats to the Philippine economy.
These threats, or risks, include a severe El Niño, which would hurt rural incomes and also impact food, water and electricity prices. The dry spell is expected to reduce harvests and hydropower output.
This can cause prices of select food items and energy to increase.
Despite this, the ADB revised its inflation forecast for the country downward to 2 percent this year and 3 percent next year. The initial inflation forecast of the ADB was at 2.8 percent in 2015 and 3.3 percent in 2016.
Apart from prices, the ADB said there are external risks that could cut the country’s economic growth this year and next year.
China impact
These external risks include the slower-than-expected economic growth in the major industrial economies and in China. The ADB said the anemic growth in China and the slower recovery in the
major industrial economies will slowdown growth in developing Asia for 2015 and 2016.
China’s growth is expected to slow to 6.8 percent in 2015, from the 7.2 percent projected earlier, and below the 7.3 percent posted in 2014.
Southeast Asia, which includes the Philippines, will be severely affected by the slowdown in China’s growth. The region is expected to post a growth of 4.4 percent in 2015 and 4.9 percent in 2016.
Bright spots
Nonetheless, the ADB said the pickup in government spending that began in the second quarter of 2015 is expected to buoy the Philippine economy.
“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,” ADB Country Director for the Philippines Richard Bolt said.
“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,” Bolt added.
The ADB also cited the better budget execution and progress in 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 are also expected to grow on the back of better employment and remittance inflow. The ADB added services will be the economy’s main growth driver due to robust business-process outsourcing, tourism and retailing industries. Further, exports are likely to improve in 2016 in line with better-performing industrial economies.
Regional growth
The ADB also cut its growth forecast for the region’s developing economies, citing a softer outlook for China and India, and a delayed recovery in the world’s advanced industrialized nations.
The Manila-based lender said in a report on Tuesday that it now predicts the region’s economies will expand 5.8 percent this year and 6 percent next year. That’s down from the 6.3-percent growth that it forecast in March for both years.
The report, which covers 45 economies, cut forecasts for some of the region’s biggest countries, including China, India, South Korea and Indonesia.
“Developing Asia is expected to continue to be the largest contributing region to global growth despite the moderation, but there are a number of headwinds in play, such as currency pressures, and worries about capital outflows,” ADB chief economist Shang-jin Wei said.
The Chinese economy, which grew a revised 7.3 percent last year, is now tipped to slow to 6.8- percent growth in 2015 and 6.7 percent in 2016. That’s down from 7.2 percent and 7.0 percent forecast previously.
“Despite robust consumption demand, economic activity fell short of expectations in the first eight months of the year, as investments and exports underperformed” in China, the report said. The ADB said it expects the pressure to ease once the recovery in the world’s advanced economies picks up, strengthening global demand.
Much of the slowdown in China, the world’s second-biggest economy, is self-imposed as part of the ruling Communist Party’s effort to replace a wornout model based on trade and investment with more self-sustaining growth driven by domestic consumption.
India is forecast to grow 7.4 percent in 2015 and 7.8 percent in 2016. The bank trimmed both forecasts by 0.4 percentage points, citing slower progress on major reforms, which has hindered investment and sagging exports.
(With AP)