ADB upgrades RP growth forecast anew to 6.2%

MANILA, Philippines - The Asian Development Bank (ADB) has upgraded anew its growth forecast for the Philippine economy this year to 6.2 percent on the back of increased consumption, stronger investment inflows and a rebound in trade.

The Manila-based international lender earlier this year estimated the country’s gross domestic product (GDP) to grow 3.1 percent in 2010, subsequently revising upwards the forecast to 3.8 percent in April and then to five percent last August.

In a press briefing following the release of the Asian Development Outlook report yesterday, ADB officials noted that the higher-than-expected 7.9 percent GDP expansion in the first half virtually ensures a solid growth performance for the rest of the year despite a slower 4.5 percent growth forecast for the second semester.

The revised ADB forecast is now higher than the government’s official five percent to six percent target.

“It is difficult for the Philippines to sustain the 7.9 percent (growth) in the first semester of 2010, which actually was beyond our expectations,” said Norio Usui, ADB senior country economist.

He added that the second semester will likewise reflect lower stimulus spending amid a slowing global economy.

But the ADB noted that the steady inflow of remittances from overseas Filipino workers (OFWs) that boost domestic consumption, increased investments, and the nearly 40 percent increase in export growth supported the GDP in the first half.

The ADB, however, maintained its 4.6 percent growth forecast for 2011.

Neeraj Jain, director of ADB’s Philippines Country Office, added that they expect inflation to average 4.5 percent this year and 4.4 percent in 2011 as a slower economic momentum and fiscal stimulus will offset rising global energy and commodity prices next year.

But Jain said the Philippine government has to increase its tax collections and improve the business climate to sustain growth over the long term.

According to the ADB report, the Philippine government needs to strengthen its tax administration given that President Aquino has promised that he won’t raise or issue new taxes.

“The country needs to increase its revenue collection in order to support social and development spending, which have lagged for many years,” Jain said.

The ADB added that the government has to invest in infrastructure and improve governance to attract more investments, create jobs and cut the 30 percent poverty incidence in this developing Southeast Asian country.

“All growth usually translates to poverty reduction,” Jain said. But the challenge is to make sure that such growth will benefit the poor.

The ADB said that the downside risks to the Philippines’ 2010-2011growth forecast include uncertainty over the strength and pace of the global economic recovery and the La Niña-induced floods that can damage farm production.

Despite balance-of-payments surpluses and substantial foreign reserves, financial markets could also become unsettled if fiscal slippage continues, raising the country’s risk premium, the ADB said. – With Xinhua