Philippines Economy 2011 Growing and Strong

The Philippine economy is likely to grow by 6.8 percent this year mostly because of election-related spending and the global recovery, the World Bank said.

“GDP growth has been stronger than expected, reflective of rapid recovery and election-related spending amidst a strong external position which has led to a sovereign credit rating upgrade in November by Standard and Poor’s,” Eric Le Borgne, World Bank Senior Economist for the Philippines, during the launch of the “Global Economic Prospects 2011, said.

The lender’s projection was higher than the government projection of 5 to 6 percent this year.

In the first nine months, the economy expanded by 7.5 percent from only 0.7 percent in the same period last year.

In 2009, the economy expanded by 1.1 percent.

Le Borgne added that growth is expected to normalize to at least 5 percent in 2011 and 5.4 percent in 2012.

“Crucial to this projection is the assumption that strong investor confidence, which manifested in strong private investment this year and in business as well as consumer sentiment surveys, would be sustained by government’s efforts to step-up reforms in the areas of governance and in improving the overall investment climate,” he said.

Published twice yearly, the GEP examines growth trends for the global economy and how they affect developing countries.

The GEP 2011 estimates that global GDP, which expanded by 3.9 percent in 2010, will slow to 3.3 percent in 2011, before it reaches 3.6 percent in 2012.

Developing countries are expected to grow 7 percent in 2010, 6 percent in 2011 and 6.1 percent in 2012. They will continue to outstrip growth in high-income countries, which is projected at 2.8 percent in 2010, 2.4 percent in 2011 and 2.7 percent in 2012.

East Asia and the Pacific,with GDP growth estimated at 9.3 percent for 2010, led the global recovery. This was on the back of an estimated 10 percent increase in Chinese GDP and a 35 percent increase in its imports. Output growth in the rest of the region was also strong at 7.8 percent. As the pace of the global recovery eases, GDP growth is projected to slow, but remain strong at 8 percent in 2011 and 7.8 percent in 2012.

The GEP 2011 says that domestic demand will be the major driver of growth in the East Asia and the Pacific region. Due to projected weaker growth among high-income countries, regional export volumes are expected to expand at a 12 percent pace in 2011-12 versus the 15 percent pace recorded during the boom. In the Philippines, worker remittances estimated to reach US $ 21.3 billion in 2010 will continue to play a critical role.

The GEP 2011 says that East Asian countries’ trade and financial linkages to the global economy are broad and intensifying, and hence shocks emanating from financial markets, from OECD trade partners as well as oil and other commodity markets can carry adverse effects to the region quickly.

These potential shocks, the report said, could be in the form of lower export of manufactures from East Asia due to weak demand from rich countries and the global rise in food prices as international investors shift their interest away from financial instruments towards staple foods. There are also risks associated with the challenge of balancing the need for easing stimulus efforts while consolidating the East Asia economies’ budgets that could slow down growth.

Le Borgne said that the Philippines, whose exports are dominated by electronics and semiconductors, is indeed exposed to the risks of a slowdown in demand from developed countries. Nevertheless, he explained that the outlook within the industry remains strong.

“Forward looking indicators in the electronics and semiconductor sector are positive, albeit slightly down in the past quarter,” Le Borgne said.

On the services side, Le Borgne said the business process outsourcing (BPO) industry is booming and despite concerns that a sharp and pronounced appreciation of the peso would have, the sector’s short term growth prospects are favorable.”

Food price shocks, Le Borgne said, poses a risk, but rice supply constraints is not expected in the near term in the Philippines given decent palay production in the latter part of 2010 and large stockpiles at the National Food Authority.

On the fiscal side, Le Borgne expects some unwinding of the crisis-related fiscal easing to happen in 2011 as part of the government’s medium-term fiscal consolidation plan that aims to reduce the overall fiscal deficit to 2 percent of GDP by 2013.

However, despite this slow unwinding and the country’s relatively high debt levels, the government has been able to access markets at historically low spreads, including last week for its $ 1.5-billion global peso bond.

Le Borgne added: “Liquidity is abundant so downside risks are also limited in this area. On the monetary policy side, while stronger and faster fiscal consolidation would help in the conduct of monetary policy, a measured unwinding is expected throughout 2011 in line with other emerging markets central banks. Limited inflationary pressures and well anchored inflation expectations would enable the BSP (Bangko Sentral ng Pilipinas) to follow such path for 2011.

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