Sustained Domestic Economic Growth Is Seen to Cap This Year

Manila Bulletin, November 2, 2012 | Go to article overview
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Sustained Domestic Economic Growth Is Seen to Cap This Year

The Philippine economy is one of the best performing economies in Asia as multinational and financial institutions have projected sustained growth of the country's gross domestic product (GDP).

While some Asian economies have posted declines in GDP performance, the domestic economy experienced robust growth in the first half of 2012 and continuous to exhibit strength despite the global and regional economic slowdown.

The Asian Development Bank (ADB) has raised its GDP growth forecast for the Philippine economy to 5.5 percent for 2012 from 4.8 percent. Stronger than expected economic growth in the first half of 2012 was broadly based.

Private consumption was buoyant, fixed capital investment quickened, public spending rebounded, and net exports contributed to growth. Inflation remains under control at 3.5% for 2012.

However, ADB said the economy needs to create more job opportunities to link economic growth to poverty reduction.

"Increased business confidence bodes well for investment and future jobs. The Philippines must guard against weaknesses outside its own economy that could have a knock-on effect," said ADB chief economist Changyong Rhee. Rhee.

ADB forecasts GDP growth for 2013 at 5.0%, unchanged from early projections. In 2013, inflation is forecast at 4.1% on the back of higher global food prices, as well as pressures from sustained strength in domestic demand.

But softer demand from industrialized countries than forecast in the report could undermine export and investment prospects for the Philippines.

The service sector is expected to continue to benefit from robust private consumption and investment. The business process outsourcing industry employed approximately 638,000 Filipinos in 2011 and this number is expected to rise by at least 20% by year end.

Although the number of new jobs has grown by one million over the past year, this only slightly exceeds overall growth in the labor force, and mainly reflects a rise in part time employment with 1.5 million positions created. Full-time jobs fell by 500,000 in the same period.

"The key challenge is to link economic growth to poverty reduction. Despite solid economic growth, job generation remains inadequate, reflected in rates of unemployment and underemployment. The incidence of poverty remains high at 26.5% in 2009, compared to 26.4% in 2006 and 24.9% in 2003," said Neeraj Jain, ADB's country director for the Philippines.

Manufacturing will also benefit from a gradual recovery in exports and growth in domestic demand. Construction, meanwhile, will benefit from public infrastructure spending and implementation of public-private projects.

FMIC-UA&P market research expects the economic outlook for the second half of the year remains positive as the government has accelerated its spending with higher Meralco electricity sales in July.

Easier monetary policy and government spending would further support economic growth for the rest the year. Growth in the first half of the year averaged 6.1 percent from 4.5 percent in the second half of 2011.

On a quarterly basis, the 5.9 percent growth in the second quarter of 2012 was slightly slower than the revised 6.3% growth in first quarter of the year.

FMIC-UA&P noted that the three major production sectors had less than vibrant performances. Agriculture decelerated by 0.3%, industry by 0.7% and services by 0.5%.

On the demand side, current government spending grew 5.9% but posed the biggest drag. It eased sharply by 150 basis points (bps).

Export growth decelerated slightly, while capital formation and household consumption expenditure improved significantly.

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