Strong demand to drive GDP at fastest pace among Asean-5
The Philippines is poised to be the fastest growing economy in Southeast Asia this year and the next, the International Monetary Fund (IMF) said in a new regional report.
In its “Regional Economic Outlook for Asia and the Pacific,” the multilateral institution forecasts higher 2016-2017 gross domestic product (GDP) growth for the Philippines compared to the rest of Association of Southeast Asian Nations (Asean)-5.
The IMF said Philippine real GDP growth is likely to hit 6 percent this year and 6.2 percent in 2017, higher than Indonesia’s 4.9 and 5.3 percent; Malaysia’s 4.4 and 4.8 percent; Thailand’s 3 percent and 3.2 percent; and Singapore 1.8 percent and 2.2 percent, respectively.
“The modest uptick in growth is expected to be driven by the continued strength of domestic demand, which will more than offset the drag from net exports. The latter will remain subdued, but spillovers from China are and will continue to be smaller [in the Philippines]than in other parts of the region,” it said.
The IMF added that domestic demand would benefit from higher public consumption and investment growth, but private demand was also expected to remain buoyant, helped by low unemployment, low oil prices, and higher workers’ remittances.
“Private investment growth is expected to remain robust owing to improvements in public infrastructure and implementation of public-private partnership projects,” it said.
The IMF forecasts were lower than the government’s 6.8 percent to 7.8 percent target for 2016 as well as the 6.6 percent to 7.6 percent range set for 2017.
GDP growth eased to 5.8 percent last year from 6.1 percent in 2014 on the back of a slowdown in exports and other factors.
Asia growth engine
Meanwhile, the IMF said growth in Asia and the Pacific is expected to remain strong at 5.3 percent this year and next, accounting for almost two-thirds of global growth.
Despite a slight moderation, it said Asia remains the engine of global growth.
While external demand remains sluggish, domestic demand continues to show resilience across most of the region, driven by low unemployment, growth in disposable income, lower commodities prices, and macroeconomic stimulus, it added.
“Of course, Asia is impacted by the still weak global recovery, and by the ongoing and necessary rebalancing in China,” said Changyong Rhee, director of the Asia and Pacific Department at the IMF.
“But domestic demand has remained remarkably resilient throughout most of the region, supported by rising real incomes, especially in commodity importers, and supportive macroeconomic policies in many countries,” he added.
However, IMF stressed that the region faces a number of external challenges, including slow growth in advanced economies, a broad slowdown across emerging markets, weak global trade, persistently low commodity prices, and increasingly volatile global financial markets.
These risks compound domestic vulnerabilities, such as high debt incurred in recent years. In the short term, China’s transition to a new growth model will disrupt its regional partners, especially those heavily exposed to the region’s biggest economy.
Geopolitical tensions and domestic policy uncertainty add risks of potential trade disruptions or lower domestic demand, it also said.
Natural disasters, too, can reverse economic gains, particularly in lower-income countries and small states, including many Pacific islands. Small states also face the challenge of reduced financial services by global banks or “de-risking” which could hold back financial inclusion and growth.
The report also recognizes, however, that the outcome could turn out more positive than forecast.
Low commodity prices could be a bigger boost to the region’s economies than expected; and regional and multilateral trade agreements, such as the Trans-Pacific Partnership, could benefit Asia-Pacific even before they are ratified, it said.