MANILA, Philippines - The Philippine economy is expected to continue its growth this year, albeit at a slower pace than 2013, according to a new report by the Asian Development Bank (ADB).
In its flagship annual economic publication Asian Development Outlook 2014, the ADB projects annual gross domestic product (GDP) growth for the Philippines of 6.4% for this year and 6.7% in 2015. The Philippine economy grew 7.2% in 2013, above the average growth of 4.7% from 2008 to 2012.
The ADB's forecast is lower than Philippine government's 6.5 to 7.5% target for 2014.
"While growth is forecast to slow from a very strong 2013, the economy will continue delivering well above its recent average growth rate this year... The key challenge is to find ways to turn this strong performance into employment that will help to further reduce poverty and support inclusive growth," ADB Deputy Chief Economist Juzhong Zhuang said.
The report noted that private consumption will continue to benefit from remittance inflows and positive consumer sentiment this year. However, higher inflation and interest rates will temper the pace of growth in consumer spending. In 2013, private consumption grew 5.6%, accounting for more than half the increase in GDP.
The ADB also noted that rehabilitation and reconstruction efforts in the areas hit by the super typhoon "Yolanda" and earthquake last year are not likely to make a significant impact on the economy until late in 2014 and 2015.
"The direct and timely transfer of national government resources to local governments and affected communities has been hindered by highly centralized national government systems. Also, regional and local administrations have limited capacity to implement reconstruction and rehabilitation programs. These matters are being addressed, which could accelerate work in the affected areas," the report stated.
The ADB said the damaged regions contributed 17% of GDP in 2010–2012, with Eastern Visayas, the worst hit, accounting for 2.5% of GDP
At the same time, the ADB noted there are positive signs for continued growth in investments.
"Improved business confidence and rising inflows of foreign direct investment will support private investment. Confidence has been reinforced by the achievement last year of investment grade sovereign credit ratings and improvements in several global competitiveness indices," it said.
The manufacturing is expected to continue to perform well this year, on the back of strong domestic demand and improvement in exports as demand from the United States and Europe picks up. The report noted that manufacturing gew 10.5% in 2013, but still accounts for a small share of the Philippines' GDP and employment.
Also, the construction sector is expected to remain buoyant, as the government undertakes more infrastructure projects this year.
The ADB noted that growth in services, which accounted for 57% of the economy in 2013, will be driven by expansion of the business process outsourcing (BPO) sector and tourism.
Inflation is seen to average 4.3% in 2014, higher than last year, due to the impact of natural calamities, rising domestic demand, and expected increases in utility tariff. The peso's depreciation is also expected to push up import prices.
In 2015, inflation is seen at 4.0%, on the assumption of softer global commodity prices.
However, job creation is still a critical challenge for the Philippines. The ADB noted that while the economy grew by more than 6% in the last two years, it has not generated enough jobs to reduce poverty.
Government data show nearly 3 million people are unemployed and an additional 7 million are underemployed. The poverty rate stood at 25.2% in 2012, only slightly better than 26.3% in 2009.
"The government’s strategy is to raise public investment on infrastructure, agriculture, education, and health, while improving the investment climate and expanding manufacturing. Public-private partnerships are a key strategy to raising investments and enhancing competitiveness," it said.