The Asian Development Bank (ADB) is keeping its Philippine growth forecasts at 6.5 percent for this year and 6.7 percent for 2018, with support expected to come from consumer spending and public investments.
“GDP (gross domestic product) growth is projected to strengthen in the rest of the year and in 2018 as domestic demand is likely to continue to expand in the near term,” the Manila-based lender said on Tuesday in an update to its Asian Development Outlook.
The forecast for 2017, which is lower than last year’s actual expansion of 6.9 percent, falls at the bottom end of the government’s 6.5-7.5 percent target. The 2018 projection, meanwhile, is lower than the official 7.0-8.0 percent goal.
The Philippine economy grew by 6.5 percent in the second quarter, picking up from 6.4 percent in the first three months of the year. Year-to-date growth, at 6.4 percent, remains below target.
Still, the ADB noted that fixed investments grew by 12.1 percent in the first half, with its share as a percentage of GDP the highest in over a decade at 25.8 percent.
“Public and private investment, and household consumption supported by remittances from overseas Filipinos, were the key drivers of growth,” it said.
Services, described as the largest sector of the economy, was said to have grown by 6.4 percent during the period with outsourcing, trade, tourism and finance the primary drivers.
Manufacturing also quickened to 7.7 percent, the ADB said.
While inflation rose to 3.1 percent in the first 8 months of the year from 1.5 percent a year before, the multilateral lender said this remained within Bangko Sentral ng Pilipinas target of 2.0-4.0 percent.
Inflation forecasts for this year and the next have also been cut to 3.2 percent and 3.5 percent, respectively, from 3.5 percent and 3.7 percent.
The ADB said growth would see a push from higher public spending and the expected approval of tax reforms still being deliberated by Congress.
“The concerted effort by the Philippine government to improve public project implementation is bearing fruit, as public investment programs help drive continued economic expansion,” ADB country director Richard Bolt said a statement.
“A strong focus on infrastructure investment and implementation of tax reform will see the country continue its growth momentum through 2018,” he added.
The ADB said that passage of government-proposed tax reform packages were vital given plans to increase investments in infrastructure and social services
“In view of the ambitious public investment program, government agencies need to expand their absorptive capacity and their ability to prepare, implement, and manage infrastructure projects,” it added.
In addition to strong remittances from overseas Filipinos, a proposed reduction in personal income tax rates will boost household consumption, the ABD said.
Rising capital goods imports and a sustained expansion in credit to businesses also suggest that private investments will see solid growth.
Services are expected to remain the lead driver of growth, with business process outsourcing in particular estimated to see revenues of $25.5 billion and employ about 1.4 million this year.
Prospects for manufacturing continue to be robust, the ADB said, as the composite purchasing managers’ index in July remained firmly above the 50-point threshold.
Private construction, meanwhile, is likely to be supported by demand for office and retail space as well as housing.