MANILA, Philippines (UPDATE) - The World Bank raised its growth outlook for the Philippines this year to 4.6%, according to its latest quarterly report.
In the Philippines Quarterly Update, the World Bank projected the Philippine economy will grow at 4.6% in 2012, revising its earlier target of 4%. The revised growth forecast reflects the Philippines' stronger-than-expected performance in the first quarter, growing by 6.4%.
The World Bank also sees the Philippine economy growing 5% next year.
However, the World Bank's projection is still lower than the Philippine government target of 5-6% growth for 2012, and 6-7% in 2013.
The Philippines would have to boost spending in infrastructure, education and health to maintain growth that would benefit the poor, especially if the euro zone debt crisis escalates, the World Bank report stated.
"Given the worsening global scenario, investments by the private sector and government spending on key infrastructure as well as education and health will need to rise substantially to cushion the impact of the global crisis, sustain growth as well as create more and better jobs in the Philippines," World Bank Country Director Motoo Konishi said, in a statement.
World Bank economist Soonhwa Yi, main author of the report, said, "A highly-educated, healthier and skilled workforce will enhance productivity, enable firms to diversify, and shift to higher value-added activities, and drive growth."
The country's growth is expected to be fueled by stronger government spending, remittances and service sector.
However, the World Bank noted the growth rates in the Philippines' major export markets are still seen to be sluggish, particularly the euro zone and China. A global slowdown is expected to affect sectors of the Philippine manufacturing industry, particularly electronics, and may cause job losses.
"What favors the Philippines, given the global uncertainties, are its strong macroeconomic fundamentals: low inflation, a flexible exchange rate, a current account surplus, manageable government finances, high international reserves equivalent to almost a year’s worth of imports, and steady remittances," the report said.
Also going for the Philippines are its positive current account balance and a flexible foreign exchange policy, considered the first line of defense against a global downturn.
The World Bank also reiteratde the government should broaden its tax base and improve efficiency in tax collections.
"Improved resource mobilization will not only help brace the economy against a prolonged global economic slump, but also enable the government to make the necessary investments in the physical and human capital needed to underpin a more inclusive growth pattern and make the country more competitive. In this regard, the investment climate for firms of all sizes needs to continue to improve, so that the private sector can generate more and better jobs for all,” said Rogier van den Brink, World Bank lead economist for the Philippines.
The World Bank estimates remittances to grow 5 percent this year, matching the central bank's projection, but growth may slow to 4 percent in 2013.
It expects exports to grow 4.9 percent this year and 7.5 percent next year, significantly slower than the government's 10 percent and 12 percent estimates for this year and the next.
The report also said inflation in Philippines was expected to average 3.5 percent this year, near the low end of the central bank's 3 to 5 inflation target, allowing authorities to keep interest rates steady in the near term.
"The challenge for policymakers is to cushion the economy from potential external shocks while ensuring that the Philippines continues to improve its competitiveness," the World Bank said. - With Reuters