In its latest projections, the World Bank (WB)has forecast real gross domestic product (GDP) growth for the Philippines to reach 3.5 percent in 2010 and accelerate moderately to 3.8 percent in 2011.

In its latest economic update, the World Bank said: "The upward revision from our previous forecast reflects a stronger global outlook, larger than expected OFW deployment in 2009 leading to an upward revision in our remittance projections, and a looser fiscal stance in 2010 than earlier anticipated."

"The size and pace of the peak-to-trough and the projected recovery in 2010 is closely aligned with past Philippine recessions. However, unless reforms address long-standing growth bottlenecks, growth will be constrained," said WB.

Amid some bright spots, social indicators remain weak, reflecting the series of natural and man-made crises that have hit the country, the report said.

WB noted that hunger incidence reached record highs in late 2009, with Manila particularly badly affected. This partly resulted from the long-lasting hardship that typhoon “Ondoy” brought to the poor in the capital region.

Both unemployment and underemployment remain elevated and the labor force participation rate is increasing rapidly as households seek additional income given the pressure on real wages.

Deployment of overseas foreign workers (OFW) remained strong despite rapidly rising global unemployment, reflecting the Filipino workers’ attractiveness in the global labor market, as evident in the sea-faring industry.

Despite a series of diverse global shocks, the balance of payments remained strong throughout the past two years, thanks to strongly counter-cyclical inflows of workers’ remittances, said WB.

"Thanks to the country’s robust balance of payments surpluses, the central bank has been able to accumulate substantial foreign exchange liquidity in 2009 – US$20 billion between net international reserves and the forward book of the central bank – providing ample support to the country’s trade and external repayments needs."

Trade recovered in late 2009 but exports remain at 2005 levels. As expected, remittances accelerated in the fourth quarter of 2009, in part due to transfers to typhoon-affected relatives, said WB.

"The counter-cyclical nature of real peso remittances has been remarkable in the past three years as the economy recovers, the strength of these remittances is projected to wane in 2010."

WB also noted that the Philippine economy recorded positive growth for the year as a whole. Real GDP grew 0.9 percent in 2009, but contracted by a similar amount on per capita basis.

Private consumption – partly driven by strong remittance inflows – and robust public spending have been the key growth drivers.

Investment and net exports continue to be a drag on growth, but at a decelerating rate. On the supply side, the typhoons that generated massive floods in the national capital region and the Luzon Island in general in September and October 2009 profoundly impacted the agricultural sector in the fourth quarter of 2009. Industry is gradually recovering with business sentiment strong.