Sees 2016 GDP expansion easing to 6% on external headwinds, election uncertainty
The Asian Development Bank (ADB) has trimmed its growth outlook for the Philippine economy this year but said gross domestic product (GDP) will still be higher than last year despite external headwinds and uncertainty about policy continuity after the May elections.
In its 2016 Asian Development Outlook (ADO) report, the Manila-based multilateral lender forecasts Philippine GDP to grow 6 percent this year.
ADB’s projection is a downward revision from its previous 6.3 percent outlook for 2016, as well as the government’s official 6.8 percent to 7.8 percent target. However, this is still higher than the 5.8 percent print in 2015.
“Our downgrade for the Philippine growth rate is because of the broader downgrade for developing Asia’s outlook. I must emphasize that certain difficulties are happening in the global environment that we are facing. Of course, the largest part of that is the growth of the advanced countries, which is more sluggish than expected,” ADB principal economist Donghyun Park told reporters in a press conference held on Wednesday at ADB Headquarters in Pasig City.
It projects developing Asia’s growth to moderate to 5.7 percent this year from 5.9 percent in 2015.
On a positive note, the lender said strong growth this year will be driven by robust domestic consumption and investment.
“While the Philippines continues to experience headwinds, including a strong El Niño weather event which has affected agriculture, as well as weak external demand, economic growth remains strong,” said Richard Bolt, ADB country director for the Philippines.
Moving forward, it said pickup in government spending that began in 2015 should accelerate this year, lifted in part by spending ahead of the May elections.
“Private consumption will be the main growth driver again in 2016 as rising employment, higher government salaries, modest inflation, and remittance inflows all point to robust consumer spending,” it stated.
Nevertheless, ADB noted that the pace of consumption increase could moderate as slower economic activity in the Middle East has dampened growth in remittances.
Meanwhile, it pointed out that buoyant imports of capital goods in 2015 and higher foreign direct investment suggest that private investment will maintain solid growth.
However, lower global economic prospects indicate that exports will decline slightly this year before turning up in 2017.
Construction will continue to expand partly driven by public–private partnership (PPP) projects as many of the 12 PPP projects awarded since 2010, involving investment of about $4 billion, are under construction, the lender said.
ADB said the main risks to the outlook come from the impact on agriculture and food prices of El Niño, if it is more severe than anticipated, and weaker-than-expected growth in main trading partners.
“Potential risks from global financial market volatility are cushioned by the country’s economic fundamentals: a surplus in the current account, high international reserves, low inflation, and improved fiscal position,” it stressed.
The lender also acknowledged that the economic outlook is subject to more uncertainty than usual as the outcome of the national elections will have an important bearing on policy.
“Sustaining the strong growth performance will require policy continuity in key areas, including the development of infrastructure and human capital, improvements to the investment climate, and governance reform,” it said.
ADB said slightly stronger GDP growth is forecast for 2017, in part on expectations of better economic performance in the US, the Philippines’ second biggest export market and a significant source of foreign direct investment and remittances.
“Net external demand is projected to add to GDP growth in 2017. Private investment is expected to pick up if efforts to improve the investment environment are sustained,” it said.