Outlook tempered for PHL, much of Asia

ESCAP previously tipped a faster 6.3% expansion for the Philippine economy in mid-January, when it released the yearend update to the 2015 edition of the survey. Actual Philippine GDP growth was 5.8% last year.

“I think it’s been more of a broad-based trend not just in the Philippines,” ESCAP Economic Affairs Officer Heather Lynne Taylor said during the report’s Philippine launch in Mandaluyong City, when asked what prompted the downward revision.

“[I]t’s largely related to externalities especially related to China, depreciation of Chinese currency. That’s had a significant impact on growth outlook for many of Asian economies since our yearend update in 2015.”

ESCAP expects the Asia and the Pacific region to expand slower than previously thought, revising its regional forecast this year down to 3.5% from 3.6%.

The UN agency likewise cut to 4.8% from 5% the projected growth of developing Asia-Pacific, which includes all economies in the region except Australia, Japan and New Zealand.

“One important factor hindering faster economic growth of developing economies in Asia and the Pacific is the fragile recovery in the advanced economies,” ESCAP noted.

“With the outlook for the European Union and Japan continuing to remain weak, alongside somewhat stronger growth performance expected in the United States, the prospects of an export-led recovery in developing Asia-Pacific economies will remain broadly subdued.”

ESCAP also cited the moderating growth of China’s economy amid a rebalancing away from investment and manufacturing toward one that increasingly relies on consumption and services.

“Given the large weight of China in the GDP of the developing Asia-Pacific region — 40% of the total — even a small change in its GDP growth estimates would result in a considerable impact on the region’s growth outlook.”

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Still, the 3.5% growth prospect for the Asia and the Pacific this year is more sanguine than the 3.3% estimated for 2015. The region is expected to grow at an even faster 3.6% next year.

The Philippine economy is expected to expand by 6.2% next year.

Benign inflation and low jobless rates, according to ESCAP, should continue to fuel consumer spending, which accounts for around 70% of Philippine GDP.

“Strong investment growth is also expected, as private participation in infrastructure increases and [foreign direct investment] inflows strengthen, albeit from a low base,” the UN agency added.

“However, part of business investment may be held back in the election year as investors wait to see what would be the new administration’s policies.”

The elections, on the other hand, provide additional boost to domestic consumption, Finance Undersecretary and Chief Economist Gil S. Beltran noted during the launch of the 2016 survey.

First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA and P), in a separate report released yesterday, also cited election-related spending among the economy’s growth drivers in the first quarter.

In the April edition of The Market Call, FMIC and UA and P projected an above-7% first-quarter GDP growth, even if agriculture were to decline 5% in the same three months.

“This optimistic outlook not only hinges on our expectation for the other sectors,” read the joint monthly report.

“Robust election spending by both the government and the candidate should continue not only though the rest of [first quarter], but up to actual elections in May. This should boost employment, consumer and investment spending.”

Mr. Beltran cited how election spending has allowed the Philippine economy to grow an additional 0.5 to one percentage point, as observed in the past 30 years.

Nevertheless, the Philippines remains exposed to downside external risks, the finance official said.

“The only reason perhaps that we forecast a lower number this year than six years ago is because of the uncertain export market,” Mr. Beltran said during the launch of the 2016 survey.

“Exports are still declining as of the latest data, it’s down 4%. But the silver lining is that our export of services is very robust, growing at double-digit rates so that will offset the negative number for merchandise export.”

In February meeting, the interagency Development Budget Coordination Committee trimmed the government’s GDP target to 6.8%-7.8% from 7%-8% for this year.

“If some of these downside risks in the external environment materialize in 2016, economic growth in the Asia-Pacific region could turn out to be lower than currently projected in the baseline scenario,” ESCAP noted.

Source: B World Online