Washington-based lender World Bank warned that the country’s strong credit and construction boom presents elements of an asset-price bubble.
In its “Global Economic Prospects” report for 2014, the multilateral agency warned that four countries—Cambodia, Lao PDR, Myanmar and the Philippines—in the East Asia and the Pacific region of a possible price-asset bubble.
“The strong credit and construction boom presents elements of an asset-price bubble in the four countries that could unwind in a disorderly fashion if not managed prudently,” it stated.
The multilateral agency said that the sustained increase in remittances and foreign direct investments (FDI) flows also continues to put upward pressure on the currencies of the region, especially in the Philippines, which is likely to hurt competitiveness.
The government earlier said that it is seeing a more robust remittances and FDI inflows for 2014 on the account of the reconstruction efforts on areas affected by Super Typhoon Yolanda. Cash remittances from overseas Filipino workers are seen to reach P23.6 billion, growing 5 percent this year, while FDI inflows was estimated at P2.6 billion.
“In the Philippines, there is increasing need to undertake structural reforms and rebalance the economy from its excessive dependence on consumption, while at the same time prioritizing investment, to rebuild the typhoon—stricken portions of the economy,” the report said.
The lender added that careful management of fiscal levers in the Philippines may be requested to direct spending toward the affected areas of the typhoon and away from overheating sectors elsewhere.
For 2013 to 2014, the World Bank said that the country’s economy, as measured by gross domestic product (GDP), is estimated to grow by 6.9-percent before slowing down to 6.5 percent, respectively.
It also said that the reconstruction efforts in Central Philippines reflect an ongoing construction boom.
Growing by 7 percent in the third quarter of 2013, and 7.4 percent in the first nine month of the year, the government is still confident that the Philippine economy will grow within its 6-percent to 7-percent target for 2013, despite the negative impact of the typhoon.
Furthermore, the World Bank report said that the reconstruction efforts in the Philippines would also support the growth in the East Asia and the Pacific region.
The World Bank expects overall growth in the region to stay flat at about 7.2 percent in 2014 and ease insignificantly to 7.1 percent in 2015 and 2016 to 5.7 percent.
“A temporary acceleration of regional growth [excluding China]in 2015 to 5.7 percent partly reflects reconstruction efforts in the Philippines,” it said.