ADB Sees Robust Growth in Philippines in 2014 and 2015

News Release | 25 September 2014

MANILA, PHILIPPINES – The Philippine economy will continue its robust expansion in 2014 and 2015, though growth will undershoot earlier forecasts as unexpectedly low government spending, higher inflation and related monetary tightening dampen activity, says a new Asian Development Bank (ADB) report.

In an update of its flagship annual economic publication, Asian Development Outlook 2014, ADB trimmed its forecasts for growth in Philippine gross domestic product (GDP) to 6.2% in 2014 from 6.4% in April, and to 6.4% for 2015, compared with 6.7% in April.

“Consumption and investment remain strong, and exports are recovering,” said ADB Country Director for the Philippines Richard Bolt in launching the report. “Accelerating infrastructure projects, taking measures to strengthen competition, and increasing access to finance can boost growth and create jobs.”

The report notes that poverty incidence fell 3.0 percentage points to 24.9% in the first half of 2013—the latest period for which data is available—from the same period in 2012. But it says further efforts are needed to raise productivity and create jobs.

The government has launched initiatives to strengthen competition, enhance the regulatory framework for public–private partnerships, develop capital markets and boost access to finance. Such initiatives can raise the country’s competitiveness, support small and medium enterprise development, raise investments in outlying areas, especially in the southern Philippines, and foster subregional economic integration.

The slightly lower growth is due largely to a slowdown in government spending, which grew 0.9% in the first half of 2014 compared to 11.1% in the same period last year. The slowdown came off a high point in 2013, an election year, but also reflects caution among government agencies amid concerns about the misuse of public funds. The outlook assumes steps taken to address administrative bottlenecks will accelerate fiscal disbursement from late 2014.

Private construction, while moderating from the rapid pace of recent years, is projected to expand through the forecast period. Building permits rose 11.2% year-on-year in the second quarter as both residential and nonresidential approvals increased.

Exports of goods and services reversed a contraction in the first half of 2013 to rebound by 11.8% by volume, led by gains in electronics including semiconductors. Imports of goods and services also recovered, but at a slower pace of 5.7%.

Foreign direct investment, though low compared with other countries in the region, jumped 77% in the first half of 2014 to $3.6 billion—and almost doubled in 2013 to $3.8 billion from an annual average of about $2 billion in 2008–2012. Central bank surveys show business sentiment is generally positive.

Fiscal policy is expected to be more supportive of economic growth in 2015. The government’s proposed 2015 budget will increase spending by 15.1% over 2014, with increases for social services, infrastructure, and investment in agriculture, tourism, and manufacturing.

Despite strong GDP growth averaging 6.3% since 2010, job generation is insufficient. Underemployment remains high at 18.3% of those employed because new jobs are largely part time or informal. A stronger manufacturing sector—which currently generates 8% of total employment—and further expansion of tourism and other service industries, would create more and better-paid jobs. ADB sees inflation averaging 4.4% this year, easing to 4.1% in 2015.