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Philippine Economy Surging But Job Creation Lags
ADB sharply upgraded its 2013 GDP growth forecast for the Philippines, but warns that growth has yet to generate new jobs.
MANILA, PHILIPPINES – Booming investment and consumption continue to underpin an economic renaissance in the Philippines, but robust growth has yet to generate sizeable numbers of new jobs, says a new Asian Development Bank (ADB) report.
“The economy is riding high on the back of hefty domestic demand and investment, low inflation and interest rates, buoyant remittance flows, and upbeat business sentiment,” said Neeraj Jain, ADB's Country Director for the Philippines. “However the good times are not translating into jobs with over a quarter of all Filipino workers still unemployed or underemployed.”
In an update of its flagship annual economic publication, Asian Development Outlook 2013, released today, ADB sharply upgraded its 2013 gross domestic product (GDP) growth forecast to 7.0% from 6.0 % in April. For 2014, growth is now estimated at 6.1%, from the previous projection of 5.9%. In 2012, growth reached 6.8%.
In the first half of 2013, the economy surged 7.6%, supported by spending linked to elections, strong investment in construction, and a further expansion of the services sector, which accounted for half the GDP growth. The performance was, however, tempered by a fall in export volumes.
Looking ahead, the same drivers will continue to fuel economic activity, supported by the benign inflation and interest rate environment, ample liquidity, and a rise in government spending. At the same time the authorities will need to keep a close eye on credit conditions with the possibility of a central bank tightening of monetary policy next year. Strong domestic demand and a weaker peso may put some upward pressure on inflation in 2014.
Recent financial jitters sparked by expectations of a wind-back of the United States Federal Reserve’s quantitative easing operations have raised concerns about the impact of an exodus of foreign capital from emerging markets. The Philippines is well placed to withstand any volatility with its current account firmly in surplus and high foreign exchange reserves. Its external debt as a share of GDP is also on a downtrend and the banking sector is healthy, with strong capital adequacy ratios and low levels of non-performing loans.
The challenge for the economy, however, remains job creation, the report says. Employment generation over the past two years has fallen short of the official goal of adding 1 million new jobs a year needed to absorb new entrants into the labor force and to put a dent in joblessness. Currently about 3 million people are unemployed and another 7.3 million don’t have enough work.
Services cannot absorb all job seekers, and with employment in manufacturing declining over the past two decades, there is pressure to reinvigorate the sector so more work can be created for semi- or unskilled workers. This requires sustained efforts to clear obstacles to direct investment, to upgrade infrastructure, and to make improvements to governance. The government must also step up work with the private sector to develop plans for the development of niche market industries in manufacturing and agribusiness on which the Philippines could capitalize.