Improving labor market to support 6% GDP growth in 2015, lower than govt’s 7-8% target
Banking giant Standard Chartered Bank expects slower expansion for the Philippine economy this year, but said robust private consumption and an improving labor market outlook would mitigate the deceleration.
Philippine gross domestic product (GDP) growth will remain robust at 6 percent in 2015, Standard Chartered said.
The bank’s 2015 GDP forecast is slightly lower than the 6.1 percent growth in 2014, and is also significantly lower than the 7-percent to 8-percent growth target of the government this year.
Strong private consumption
“[The] encouraging outlook for the Philippines’ labor market supports our expectation of strong private consumption in the coming years,” Standard Chartered said in a research note.
Standard Chartered noted that private consumption accounts for 73 percent of the economy and should cushion growth against volatile external factors.
Private spending has so far centered on basic necessities such as food, housing and transport, it said.
“We see potential for increased spending on non-necessities as employment prospects improve and incomes rise. Motor vehicle sales were robust in 2014 and will likely remain so on buoyant growth,” the bank stated.
Standard Chartered stressed that the country’s labor market has improved since 2010, noting that unemployment rate has been declining for the past five years as more people enter full-time employment.
It said unemployment rate fell to a new low of 6 percent in the fourth quarter of 2014 from a peak of 8 percent in the second quarter of 2010.
“The drop was relatively broad-based across the country. We expect the gradual shift towards full-time employment to keep private consumption growth resilient,” it said.
The bank also estimated that between now and 2020, the Philippines’ trend GDP growth rate will improve by 0.1 percentage point if 1 percent of the people not currently in the labor force obtain full-time employment.
It noted that for every 1 percentage point reduction in unemployment and underemployment, the trend growth rate should improve by 0.07 percentage point and 0.03 percentage point, respectively, in the same period.
Underemployment, which is prevalent in regions where the agricultural sector dominates, is expected to drop as the economy shifts more toward manufacturing and services, Standard Chartered said.
“We expect the developing manufacturing and business services sectors to boost domestic employment, as they account for only 8.1 percent and 3.3 percent of total employment, respectively, at present,” the bank concluded.