World Bank raises GDP growth forecasts for 2006, 2007 Rocel Felix Xinhua Financial News Service
November 14, 2006
THE World Bank has raised its 2006 economic growth forecast for the Philippines to 5.5 percent from 5.3 percent, citing a recovery in agriculture, steady rise in exports and robust remittances from overseas Filipino workers.
In its latest twice-yearly growth outlook on East Asia, the bank also upgraded its GDP growth forecast for the Philippines next year to 5.7 percent from 5.6 percent, and said Manila can withstand a possible slowdown in the US economy.
The World Bank's forecasts are at the lower end of the Philippine government's target range of 5.5-6.1 percent for this year and 5.7-6.5 percent for 2007.
The bank noted that favorable weather helped increased farm output by over five percent in the first half and, a rebound in electronics exports pushed overall export growth to 17.5 percent.
Economic growth was also aided by a rise in consumer spending, strong remittances, lower interest rates, tamer inflation, stronger foreign direct investment, and tax revenue efforts.
"Relative to other countries in the region, things are moving on pretty well for the Philippines," said Sanjay Dhar, lead economist for the World Bank in Manila. "Its growth is not a typical pattern but can be sustainable," especially if the government keeps in mind its fiscal targets, he said.
"The Philippines is coming off from major adjustments of its consolidated public sector deficit which led to a primary surplus in the first half, with government restrained spending. If this adjustment is maintained, it gives government more room for more public investment," adds Dhar.
He said that if the economy sustains 5-6 percent growth, spare capacity will increase and investments will pick up starting next year.
"Government expenditure can expand in real terms in relation to GDP especially with falling interest rates and as more foreign private fund agencies are willing to lend at lower spreads."
Dhar said even with the prospect of a US economic slowdown that will consequently hit exports from the region, countries like the Philippines would still be able to cushion its impact, with domestic consumption and investments supporting growth.
There is also the boost from cheaper fuel costs with the World Bank estimating that oil prices will likely stabilize to 60 dollars per barrel in 2007 from 65 dollars this year.
One of the major challenges in 2007 for the Philippines, Dhar said, would be for the government not to lose sight of its fiscal targets, especially with national elections in May likely to increase public spending.
At the same time, Manila's tax reform efforts should continue while structural impediments to investments should be addressed, the World Bank said, noting that poor infrastructure and the high cost of doing business here are still major constraints to attracting long-term foreign funds.
