OECD forecasts slower PH growth

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Philippine economic growth will slow this year, an Organization for Economic Cooperation and Development (OECD) think tank said, with a second-semester acceleration unlikely to overcome the first half’s below-target result.

Released on Tuesday, the OECD Development Centre’s “Economic Outlook for Southeast Asia, China and India 2018” estimated that the Philippine economy, as measured by gross domestic product (GDP), would expand by 6.6 percent this year.

The forecast—near the lower end of the government’s 6.5-7.5 percent target—is lower than 2016’s actual GDP growth of 6.9 percent.

The economy grew by 6.5 percent in the second quarter, picking up from the 6.4 percent recorded in the first three months of the year but down from the 7.1 percent posted a year earlier.

Year to date growth, at 6.4 percent, remains below target.

“While year-to-date year-on-year economic growth of 6.4 percent is slower than the 7 percent [unrevised]in 2016 first half, it remains the fastest among Asean-5 economies,” the Centre noted, referring to Association of Southeast Asian Nations (Asean) sub-grouping of the Philippines, Indonesia, Malaysia, Thailand and Vietnam.

Benign inflation, a stable financial sector, accommodative monetary policy, robust remittance inflows and a healthy fiscal position should continue to facilitate domestic consumption growth at least until the end of the year, it added.

“Taking all of these into account, the Philippine economy is projected to grow by 6.6 percent in 2017, with growth in 2017 second half anticipated to be slightly faster than in 2017 first half,” it said.

A clearer picture of full-year growth will be available on Thursday when the government releases third quarter GDP data. A Manila Times poll of analysts resulted in a tight forecast range of 6.3 percent to 6.6 percent.

5-yr growth

The Centre, meanwhile, also said that average Philippine growth from 2018 to 2022 was expected to reach 6.4 percent, better than the 5.9 percent recorded from 2011 to 2015.

“Private consumption, which has maintained its share of about 70 percent of the economy since 2000, will continue to loom large,” it said.

A proposed reduction in the personal income tax rate of a significant portion of workers nationwide, contained in proposed tax legislation, should contribute to consumer spending momentum.

Consistent growth in remittances from overseas workers is another positive factor and government spending is also expected to gain momentum should planned major infrastructure projects go forward.

“On the other hand, the investment outlook is modest. Even though domestic and external demand have been quite robust, the pullback in fixed investment growth—from double digits since 2014 (peaking at more than 30 percent in second quarter 2016) to below 9.4 percent in second quarter 2017—signals some apprehension among investors, albeit not to a worrisome degree at this point,” the Centre noted.

Meanwhile, it said that full liberalization of the banking sector and an increased focus on e-commerce services would attract interest among offshore investors in coming years.

Manufacturing, especially the semiconductor business, is also well positioned to capture opportunities presented by improvements in external conditions, although issues related to electricity cost and stability require further action.

On the other hand, it said that “commitments in business process outsourcing have reportedly fallen, according to the PSA (Philippine Statistics Authority) … while anecdotal evidence shows that revenue growth is slowing down.”

Investments in the mining sector were also said to have remained subdued in the absence of a clear regulatory framework.

Infrastructure

As highlighted in the 2017-2022 Philippine Development Plan 2017-2022, the Centre said there was a need to address the country’s underdeveloped infrastructure.

While improvements have been made in recent years, additional capital and efficient investments are needed to keep up with demand in the fast-growing economy, it noted.

While the government is looking to attract investors for public-private partnerships (PPPs), the think tank noted challenges such as the absence of a deep long-term fund pool, which means that private project developers would bear higher credit costs.

“The PPP Center could be strengthened in terms of its mandate and resources. While the bond market could provide an alternative source of financing, these markets need further development; the ratio of the total outstanding value of local-currency bonds to GDP remains relatively small,” it suggested.

Lastly, the Centre said that non-traditional tools, such as levies to capture the appreciation in land value resulting from infrastructure development, could be considered to raise revenues.

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