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World Bank raises Philippines growth forecast
Publication Date : 09-10-2012
The World Bank has raised to 5 per cent its growth forecast for the Philippine economy for 2012 despite a projected regional slowdown.
It was the second time the multilateral agency revised upward its growth target for the country—from 4.6 per cent in July and 4.2 per cent in May.
The World Bank’s growth upgrade came after the Asian Development Bank (ADB) last week raised its growth outlook for the Philippines from 4.8 per cent to 5.5 per cent in 2012.
In a report called “East Asia and Pacific Data Monitor”, released yesterday, the World Bank cited the country’s strong performance in the first semester during which the gross domestic product (GDP) grew 6.1 per cent, slightly above the government’s 5- to 6-per cent target for the year.
“In the Philippines, the acceleration of government infrastructure spending has contributed to the strong growth performance in the first half while revenue growth is supported by tax administration reforms as well as strong GDP growth,” the bank said.
Economic growth outlook for developing countries in East Asia and the Pacific, however, was trimmed to 7.2 per cent from 7.6 per cent in 2012, dragged down by China’s worst economic performance in 13 years. The region grew 8.2 per cent in 2011.
For 2013, the World Bank expects the Philippines to grow 5 per cent, unchanged from this year’s forecast while it forecasts a rebound in East Asia and the Pacific.
“In East Asia, growth among developing economies is expected to decline a full percentage point from 2011 to 7.2 per cent this year, before recovering to 7.6 per cent in 2013 backed by continued strong domestic demand and aided by an uptick in global trade growth,” the report said.
The region covered by the new forecast includes China, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, Cambodia, Fiji, Laos, Mongolia, Burma (Myanmar), Papua New Guinea, the Solomon Islands and East Timor.
The report said China’s economy would grow just 7.7 per cent this year, down from 9.3 per cent in 2011 and its slowest rate since 1999, but added that stimulus measures would help push it back above the crucial 8.0-per cent mark in 2013.
The report said that recent policy moves by the European Central Bank had reduced tensions from the eurozone crisis, and that the announcement by the US Federal Reserve Bank on a new round of quantitative easing to boost the American economy had helped revive the global equity markets.
However, it warned that disruptions in international financial markets could still cloud the economic outlook for the region.
In addition, the World Bank said a slowdown in China remained a concern as weak exports and lower investment growth would cut its GDP. China is projected to grow 7.7 per cent this year from an earlier forecast of 8.2 per cent. It is expected to grow 8.1 per cent next year, lower than the previous forecast of 8.6 per cent.
The recent global food price increases seem less of a risk to the region as rice markets are not much affected at the moment, according to the bank.
With the growth prospects, the bank said poverty incidence would continue to decline, with the share of people living on US$2 per day dropping to 24.5 per cent by the end of 2013 from 28.8 per cent in 2010.
The bank urged policy makers in East Asia and the Pacific to continue managing growth and reducing poverty in an environment that would remain volatile.
“The East Asia and Pacific region’s share in the global economy has tripled in the last two decades, from 6 per cent to almost 18 per cent today, which underscores the critical importance of this region’s continued growth for the rest of the world,” said World Bank Group President Jim Yong-kim.
The report comes as the Washington-based World Bank and International Monetary Fund prepare to hold their annual meetings at the end of the week. The Group of Seven advanced economies will also meet to discuss the global outlook.
Despite the downgraded numbers, Bert Hofman, World Bank chief economist for East Asia and the Pacific, said: “Our main forecast is still that China will have a soft landing.”
He also told journalists in Singapore that while there was a risk of a major slowdown, “we think it’s small, not least because of the policy space that the authorities still have and the likelihood that they will indeed use it.
“They have enough fiscal space, they still have some monetary space so they could revamp the economy…if and when needed.” Hofman noted that China was being hit by a “double whammy” of an export slowdown and softer domestic demand.
In East Asia and the Pacific, regional GDP growth will be the slowest since 2001, even worse than at the peak of the global financial crisis in 2009, Hofman said.
But the bank said this should rebound in 2013, driven by domestic demand. But it warned that a worsening of the eurozone debt crisis, problems in the United States and a further slowdown in China are major risks.
Hofman said East Asia and the Pacific’s growth rates were “still the envy of many in the developed world.”
The European Central Bank’s pledge to vigorously defend the euro and to pursue a massive bond-buying programme have brought some calm to global markets, but the World Bank said on Monday the situation could still worsen.
“With a ‘major’ crisis, GDP growth could drop by more than two percentage points in 2013,” said the report.
Hofman said such a scenario would involve more than one member exiting the eurozone.
About 15 per cent of East Asia’s trade goes directly to Europe, and financial turmoil sparked by a major crisis in the eurozone could dampen risk-taking and dent investments and private consumption, Hofman added.
Violent protests against austerity measures have already wracked debt-stricken Spain and Greece.
Spain, the eurozone’s fourth largest economy, has insisted it does not need a financial bailout, raising concern in international markets about whether it can continue to function without an injection of funds.
In Greece, Prime Minister Antonis Samaras warned his country would run out of funds next month if no fresh financial infusion is upcoming, and his people could no longer accept further belt-tightening.
While most East Asian countries are in “good shape” given their ample international reserves and healthy banking systems, governments must still prepare for any shock, Hofman said.
Countries must keep domestic credit under control, strengthen social safety nets and prepare to perk up the economy when needed, he added.
With a report from AFP