MANILA, October 19, 2010 — Following recent strong growth driven by a rebound in exports and domestic consumption, the Philippines looks poised to register a full-year overall economic growth of 6.2 percent in 2010 even with the more modest pace in the second half of the year, according to the latest Philippines Quarterly Update (PQU) by the World Bank office in Manila.
Consumption and investment, along with higher remittance from overseas Filipino workers whose numbers continue to swell, are projected to further buoy domestic demand during the remainder of 2010, says the PQU released today.
“The Philippines can build on these economic gains to create a stronger platform for future growth, along with the government’s reform budget for 2011 that contains significant measures aimed at improving spending efficiency, transparency, and accountability,” said World Bank Country Director Bert Hofman in his welcome remarks at the launch of the report.
The PQU was released simultaneously today with the East Asia and Pacific Economic Update (EAP Update), which provides a comprehensive review of the region’s economy.
Titled Robust Recovery, Rising Risks, the EAP Update notes that output in the region has recovered to above pre-crisis levels throughout developing East Asia, and is expanding to near pre-crisis rates in some countries.
Real GDP growth in the East Asia and Pacific region is likely to rise to 8.9 percent in 2010 (6.7 percent excluding China), up from 7.3 percent in 2009 and in line with the average growth rate during 2000-2008. Private sector investment is once again driving growth, economic confidence is on the rise, and trade flows have returned to pre-crisis levels.
“The global recession has demonstrated improvements in the Philippines’ macro-financial resiliency thanks to a remarkably robust external position,” said World Bank Senior Country Economist Eric Le Borgne, who heads the team that prepares the quarterly report. “This is attributed to sound initial macro-fundamentals—especially the banking system, corporate sector, balance of payments, and fiscal and monetary policy space—coupled with growing remittance inflows.”
However, the PQU also notes that the recovery in trade is maturing and the stimuli from election-related spending and pro-cyclical fiscal policy during the first half of the year is bound to fade, causing slower growth in the second half compared to the robust 7.9 percent in the first half.
Furthermore, while the economy is now growing at a rapid pace, the PQU points to major challenges in achieving inclusive growth and reducing poverty and hunger incidence which remains high in the Philippines, despite steady growth in the economy in recent years.
Earlier election-related spending geared towards low-skilled workers resulted in a short-lived decline in poverty early in the year but it increased again by mid-year, indicating that the overall trend showed limited headway in tackling poverty and hunger, the PQU says.
According to the report, high and growing income inequality, unequal sectoral and regional distribution of growth, and barriers to factor mobility across sectors and regions structurally explain this trend.
“Also, external shocks such as the El Niño dry weather phenomenon further curtailed progress in tackling poverty,” the report says.
In the public finance area, the PQU sees a potential turning point with the proposed 2011 budget which promises higher spending efficiency and more transparency and accountability as well as better targeted spending for social services for the poor.
The report says that this budget contains significant reform measures aimed at improving the overall quality of spending. For this budget to achieve its goals and help the country improve investment climate and generate inclusive growth, reforms will have to be sustained and broadened over time.
“Strengthening revenue mobilization—through a modern tax system with efficiency and equity at its core—would enable future budgets to scale up spending needed to generate inclusive growth,” the PQU says.
