Events | June 10,2017

THE PHILIPPINES will continue to be among the fastest-growing economies globally, according to latest estimates of the World Bank that cited as drivers the country’s expansionary fiscal thrust that adds to the anchors of robust private consumption and “accommodative” monetary policy.

In its June 2017 Global Economic Prospects report, titled: “A fragile recovery,” the World Bank affirmed its outlook for the Philippines at 6.9% this year, cut the 2018 projection by 0.1 of a point to 6.9% and added 0.1 of a point to 6.8% for 2019.

The latest projection for this year falls within the government target of 6.5-7.5%, while those for the next two years fall short of official 7-8% goals.

Philippine GDP grew within target by 6.9% last year, but fell short of market and official expectations at 6.4% last quarter — even as this placed the country second only to China in 2017’s first three months.

“In the Philippines, growth, led by accelerated public and private investment, is expected to remain at just under seven percent in 2017-19 — significantly higher than the long-term average of 4.3%,” the report read.

“… [E]xpansionary fiscal policy has boosted capital formation, while robust remittances, credit growth, and low inflation have supported private consumption,” it added.

“Policies in the Philippines remain accommodative, despite rapid credit growth, accelerated inflation, widening fiscal deficits and falling current account surpluses.”

Credit growth, inflation’s uptick and a widening fiscal deficit have so far remained within bounds, while a falling current account surplus has been attributed to rising importation of goods needed for planned investments.

The World Bank’s 2017 growth estimate for the Philippines matches the United Nations Economic and Social Commission for Asia and the Pacific’s 6.9%, but is above the International Monetary Fund’s and the Asian Development Bank’s 6.8% and 6.4%, respectively.

With the latest projections, the Philippines bests those of East Asia and the Pacific (6.2% this year and 6.1% for both 2018 and 2019), “emerging market and developing economies” (4.1% this year, 4.5% in 2018 and 4.7% in 2019), and the world (2.7% this year as well as 2.9% each for 2018 and 2019).

Within East Asia and the Pacific, Philippine projections are beaten only by its less developed neighbors Laos and Myanmar.

China will grow by 6.5% this year and by an annual 6.3% in 2018 and 2019, while all other comparable major Southeast Asian economies are expected to expand by a slower pace.

Another country to which the Philippines is compared, India, will grow faster: by 7.2% next year, 7.5% in 2018 and 7.7% in 2019.

The update of the multilateral development lender’s Global Economic Prospects report marked the first time in several years that its June forecasts were not reduced from those published in January due to rising growth risks.

The World Bank said advanced economies were showing signs of improvement, especially Japan and Europe, while the seven largest emerging markets — China, Brazil, Mexico, India, Indonesia, Turkey and Russia — were again helping to drive global growth.

“With a fragile but real recovery now under way, countries should seize this moment to undertake institutional and market reforms that can attract private investment to help sustain growth in the long term,” World Bank President Jim Yong Kim said in a statement.

Noting, however, that “[g]lobal economic policy uncertainty has been particularly elevated since the start of 2017,” the World Bank said “sources of economic policy uncertainty are extensive.”

It warned that new trade restrictions could derail recovery in trade that has been benefiting many advanced and developing economies, citing actions being contemplated by the administration of President Donald J. Trump, who yanked the United States out of the Trans Pacific Partnership as one of his first official acts upon assuming office in January.

Such restrictions could fall disproportionately on China and other Asian economies, the bank said. “Significant disruption to China’s exports would undermine its growth with large spillovers on the region,” the bank said. “Furthermore, trade-restricting measures in the United States could trigger retaliatory measures.”

The rising influence of populist parties in Europe, it warned further, “could reorient policies and affect economic integration in the European Union.”

“Negotiations around the exit of the United Kingdom from the European Union also carry risks. If the uncertainty persists, it could weigh on investor confidence and derail the ongoing recovery in growth,” it added. — Elijah Joseph C. Tubayan with Reuters