ADB Sees Modest Economic Recovery for Philippines in 2009-2010

MANILA, PHILIPPINES - Economic activity in the Philippines will pick up in the second half of 2009, and reach modest growth rates in 2010, the Asian Development Bank (ADB) says in a new major report.

The Asian Development Outlook 2009 Update (ADO Update), released today, says the economy will expand 2.2% in the second half of the year, up from a lower-than-expected 1% in the first half of 2009. The report projects full year growth in 2009 at 1.6%, slightly below the ADB's March projection of 2.5%, rising to 3.3% in 2010.

A sharper than anticipated slowdown in private consumption in the first half of 2009, coupled with a slump in exports and weak investment environment, has cut the growth rate more than expected, the report adds.

"There were positive factors, though, such as the steady growth in remittances and business process outsourcing services, stability in domestic financial markets and strength in external liquidity position," said Neeraj Jain, Country Director of ADB's Philippines Country Office. "Recent improvements in business and consumer sentiment are also encouraging."

Activity is expected to pick up in the latter half of this year and improve again next year, the report says, supported by the Government's fiscal stimulus measures and the gradual global recovery.

Merchandise exports are projected to edge higher as overseas demand improves. Imports will also pick up, in line with stronger private consumption and the restocking of inventories. Steadily rising remittance inflows and a surplus in trade services, mainly from the business process outsourcing sector, will keep the current account in surplus.

A key risk to the 2010 outlook is a weaker-than-anticipated global economic recovery. That would hurt exports, foreign investment inflows, and consumer and business sentiment which, while showing early signs of improvement, remain fragile, the report says.

It adds that uncertainties leading up to the General Elections in May 2010 will likely keep private investment subdued. On the other hand, domestic demand is expected to strengthen, supported by election spending, a gradual global recovery, and a lift in consumer and business sentiment, assuming a smooth election and transition in government in May.

The updated forecasts assume that the monetary stance would gradually tighten in 2010, with the timing depending on inflation and growth trends.

The report is forecasting an annual average inflation of 3.2% this year, and 4.5% for 2010, lower than the earlier forecasts.

Asian Development Outlook, and Asian Development Outlook Update, are ADB’s flagship economic reports analyzing the economic conditions and prospects in Asia and the Pacific, and are issued in March and September, respectively.

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