MANILA, PHILIPPINES - The Philippine economy is expected to sustain strong growth in 2013 and 2014, with inflation within the policy target, but the challenge is to make growth more inclusive by stimulating employment, says a new Asian Development Bank (ADB) report.

"Governance reforms and prudent macroeconomic management have laid the foundation for strong growth. The recent investment grade rating affirms the improved macroeconomic fundamentals and investment environment," said Neeraj Jain, ADB's Country Director for the Philippines. "A stronger industrial base is vital for increasing jobs, and will help make growth more inclusive and sustainable."

In its flagship annual economic publication, Asian Development Outlook 2013 (ADO 2013), released today, ADB projects annual gross domestic product (GDP) growth for the Philippines of 6% for 2013 and 2014, down slightly from 6.6% in 2012. Upbeat business and consumer sentiment will boost growth. Fiscal spending will remain robust, along with construction activity, driven by the still strong demand for housing and office space.

The 2012 expansion was driven by robust private consumption, a rebound in government spending, and increased investment. Exports also picked up. The services sector was a key growth area. Inflation eased to a five-year low of 3.2%, but is likely to edge up to 3.6% in 2013 on increased consumption and a rise in excise taxes on alcohol and tobacco.

Persistently high levels of unemployment and underemployment, with the latter at 20% of the labor force in 2012, remain a key concern. Continuous deployment of oversea workers masks the severity of the unemployment problem.

Reviving the industrial/manufacturing sector, where the Philippines has lagged most other larger countries in Southeast Asia, is critical, the report says. This will require a stronger push by policymakers to improve infrastructure and the business environment to encourage manufacturers to locate in the country.

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