MANILA, Philippines - The World Bank has downscaled its growth outlook for the Philippines to four percent from its earlier forecast of 4.5 percent in 2012, citing the direct and indirect impact of the ongoing financial turmoil in the euro zone.
The World Bank, in its latest Global Economic Prospects (GEP) report, said the prospects of an economic slowdown in China would likewise impact on the growth rate of the Philippines and the rest of East Asia.
It noted that East Asian nations rely heavily on remittances, which account for 10.7 of GDP in the case of the Philippines.
Though financial developments in the euro zone relatively calmed in the first four months of 2012, a serious deterioration is still a distinct possibility, the World Bank pointed out.
“In such a scenario, growth in East Asia and the Pacific could slow by as much as two to four percentage points due to reduced import demand, tighter international capital conditions and increased precautionary savings abroad and within the region,” the report said.
Tourism and remittances play important ancillary roles in the non-merchandise portions of East Asia’s current account position. Among developing regions, East Asia is the largest destination for global tourism arrivals, having accommodated some 116 million visitors in calendar year 2010, according to the United Nations World Tourism Organization.
Also, worker remittances provide a foundation for consumer spending and, in some cases, investment for countries such as the Philippines, Vietnam and smaller island economies. Inflows diminished at the peak of the crisis in 2009, but have since recovered to exceed pre-crisis levels by a wide margin.
The Philippines is the largest recipient of worker remittances in East Asia, accounting for 10.7 percent of the country’s GDP. It has since bounced back 24 percent since 2009, and is considered the fourth largest globally.
“In the medium term, the Philippines, where the government is determined to boost growth from the less-than-expected 3.7 percent results of 2011, hopes to use fiscal space to enhance investment and consumer spending. Portfolio investment has returned to these countries, supporting private capital outlays,” the World Bank said.
Meanwhile, simulations by the World Bank suggest that growth in East Asia and the Pacific could slow by as much as 1.5 to 2.3 percentage points.
“Countries heavily reliant on external remittances (Fiji, the Philippines and Vietnam), tourism (Cambodia, Fiji, Malaysia, Thailand and Vietnam), and commodities (Indonesia, Malaysia and Thailand) as well as those with high-levels of short-term debt or medium term financing requirements (Malaysia) would be hardest hit,” the report outlined.
A slowdown in China would spill-over into the rest of the region in the form of reduced demand for exports, and commodity dependent countries would be especially at risk of a slowdown in China’s investment. Though a soft landing is the most likely growth outturn, a more rapid-than-expected slowing is possible.
Meanwhile, the World Bank forecasts that developing country growth will slow to a relatively weak 5.3 percent in 2012, before strengthening to 5.9 percent in 2013 and six percent in 2014.
Global GDP is projected to rise 2.5 percent in 2012, three percent in 2013 and 3.31 percent in 2014, it added.
However, should the situation in Europe deteriorate sharply, no developing region would be spared, the World Bank said. Developing Europe and Central Asia is especially vulnerable because of its close trade and financial ties with high-income Europe, but the world’s poorest countries will also feel the fallout - especially countries that are heavily reliant on remittances, tourism or commodity exports or that have high-levels of short-term debt.