By Chino S. Leyco
The World Bank (WB) has trimmed its economic growth forecast for the Philippines owing to weak exports and agriculture sectors following a string of weather disturbances that struck the country.
In a statement, the Washington-based lender said that the country’s economy, as measured by its gross domestic product (GDP), may grow by 6.5 percent this year, slower compared with the bank’s earlier projection of 6.7 percent.
The World Bank’s latest estimate is also below the Duterte administration’s target range of 7.0 percent to 8.0 percent for this year.
While the bank revised downward its 2018 GDP forecast, it kept the projections for next year and 2020 at 6.7 percent and 6.6 percent, respectively.
Despite the expected weaker GDP, the World Bank still noted that the Philippine economy will “remain strong” amid rising global uncertainty and inflationary pressures.
The country’s growth slowed in the first half of 2018 due to weak exports of electronics and lower production from agriculture and fisheries due to unfavorable weather conditions.
But the bank said that the economic expansion is expected to speed up in the second half this year and in early 2019 due to rising government expenditure for infrastructure.
“There are considerable risks to the current growth forecasts, among them increasing global uncertainty due to trade tensions between the US and China as well as the rising interest rates in the US. This could raise external financing cost and further weaken the peso,” the bank said.
Mara K. Warwick, World Bank Philippines country director said that maintaining strong macroeconomic fundamentals is key to manage the risks, and at the same time, accelerating structural reforms to improve investments in physical infrastructure.
Warwick also said the Philippines should make better use of capital, labor, and technology to increase productivity in the Philippines.
“In the long term, sustaining high productivity growth is critical for the country to become a prosperous society free of poverty,” Warwick said.
Birgit Hansl, World Bank lead economist, meanwhile, said that the Philippines is fairly resilient against capital outflows compared to many of its neighbors in the East Asia Region.
“It has large foreign reserves, flexible exchange-rate, low public debt, and robust remittance inflows. At this juncture, preserving the country’s resilience rests in large part on preventing the current-account deficit from widening too much and too fast,” Hansl said.
Also, high inflation rate poses another risk to Philippine growth which could dampen private consumption and investments, Hansl said.
Rong Qian, World Bank senior economist also said that high inflation can affect the welfare of the poor and vulnerable households as they spend over two-thirds of their expenditure on food and transport. “This can potentially slow progress on poverty reduction,”
“While easing up rules for importing food products can help curb inflation, addressing structural challenges in the agriculture sector can help prevent food supply constraints in the future,” Qian said.
According to the World Bank, priority policy areas that the country needs to focus on in the long term include improving market competition through regulatory reforms, improving trade and investment climate policies and regulations, and reducing labor market rigidities and costs.
In addition, World Bank said reforms that boost domestic growth and reduce vulnerabilities of the country’s farming and fisheries sector will be essential to sustain high and broad-based growth.