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Robust private consumption and investment drove economic growth higher in 2013. Strong growth is expected to continue in the forecast period, though moderating from last year. Rehabilitation and reconstruction in areas hit by natural disasters may have a significant impact on the economy in late 2014 or 2015. Inflation is forecast to pick up this year but remain within the central bank’s target range. The challenge is to translate solid economic growth into poverty reduction by generating more and better jobs.
Despite natural disasters that devastated parts of the country in the fourth quarter of 2013, gross domestic product (GDP) grew by a solid 6.5% in that period, bringing full-year growth to 7.2%, well above the 4.7% average recorded from 2008 to 2012.
An earthquake of magnitude 7.2 on the Richter scale struck the Central Philippines in October, followed by Super Typhoon Haiyan in November, which left nearly 8,000 people dead or missing and destroyed buildings, infrastructure, and livelihoods in some parts of the Visayas.
Nevertheless, broad-based domestic demand drove economic growth through last year. Private consumption grew by 5.6% and contributed more than half of the increase in GDP.
Fixed investment increased by 11.7%, accelerating from 2012 and adding significantly to GDP growth.
Buoyant government spending was linked in part to legislative elections in May. The government raised spending on infrastructure and social services, including the national health insurance program and conditional cash transfers to poor families. Relief efforts following the natural disasters added to government spending. However, net exports of goods and services fell, acting as a drag on growth.
From the production side, the expansion last year was driven by services, manufacturing, and construction.
|Selected Economic Indicators (%) - Philippines||2014||2015|
Current account balance
(share of GDP)
Source: Asian Development Outlook (ADO) 2014; ADB estimates.
Relatively high rates of economic growth are projected over the forecast period, though easing from the fast pace in 2013. GDP growth is forecast at 6.4% in 2014 and 6.7% in 2015.
Signs are positive for continued growth in investment. Improved business confidence and rising inflows of foreign direct investment will support private investment. Confidence has been reinforced by the achievement last year of investment grade sovereign credit ratings and improvements in several global competitiveness indices. For example, the Philippines’ ranking in the World Bank’s Doing Business survey jumped by 30 places to 108th of 189 economies in 2013.
Other positive indicators for investment are sustained expansion in credit to businesses, increased investment in machinery and equipment, and a buoyant stock market, backed up by rising corporate earnings.
Private consumption will continue to benefit from remittance inflows and positive consumer sentiment, though higher inflation and interest rates will likely dampen the pace of growth in consumer spending.
The pace of increase in government spending is also expected to ease from 2013.
Source: ADB. 2014. Asian Development Outlook 2014. Manila.