The World Bank revised downward its estimate of growth in the Philippine economy for 2014 to 6 percent, but said the expansion could regain momentum in the next two years if the government ramps up its budget spending.
In its latest Philippine Economic Update, the Washington-based lender cut its growth estimate on the country’s gross domestic product (GDP) from a previous forecast of 6.4 percent.
The lender’s revised estimate is also lower than the 6.5 percent to 7.5 percent target of the government for the past year and the actual 7.2 percent GDP expansion in 2013.
“For 2014, the revised growth projection takes into account lower-than-expected government spending in the third quarter and the limited opportunity to increase spending in the fourth quarter,” the report said.
However, for 2015 and the year ahead, the World Bank said growth is expected to “bounce back” to about 6.5 percent.
World Bank’s forecast of a rebound, however, falls below the government’s target for 2015 and 2016 of 7 percent to 8 percent.
Forecast assumes full spending
The lender’s forecast assumes that the government will fully implement its P2.6 trillion 2015 budget and the P167.9 billion typhoon Yolanda rehabilitation masterplan.
Moreover, World Bank said strong remittances and foreign direct investment (FDI) inflows should support GDP growth in the years ahead.
The forecast is also supported by currently upbeat consumer and business sentiment, it said.
Oil price drop
The report also On the external front, the World Bank said the key risks are weaker-than-previously-expected global growth and financial market volatility. However, it noted that the Philippines’ strong macroeconomic fundamentals will mitigate those risks.
Pointed to falling oil prices as helping drive growth through increased manufacturing and consumption.
The lender, however, warned that the main risk to growth would come from the domestic front.
“In the near-term, the key domestic risks are the slowdown in government spending and further delays in public-private partnership projects,” it said.
Over the medium to long term, reform lags, particularly reform to raise tax revenues efficiently, equitably, and simply, could seriously undermine the government’s effort to double infrastructure spending to 5 percent of GDP and further raise education and health spending, it added.