The World Bank said Monday it downgraded its 2015 growth forecast for the Philippines to 5.8 percent from an initial estimate of 6.5 percent, amid sluggish government spending, weak exports and the initial impact of El Niño dry spell.
The Washington-based multilateral lender said in its Philippine Economic Update report growth would likely improve to 6.4 percent in 2016 and 6.2 percent in 2017, although the forecasts were also reduced by 0.1 percentage point from the previous assumptions.
It said the strong performance of private domestic demand, supported by record low inflation and robust remittances, would drive growth this year.
“Accelerated implementation of public-private partnership projects, valued at around 0.6 percent of GDP for 2015, and the continuing effect of lower food inflation and declining oil prices can further support growth,” the bank said.
The country’s gross domestic product grew 5 percent in the first quarter and 5.6 percent in the second quarter, bringing the first-half growth to 5.3 percent, below the government’s target range of 7 percent to 8 percent.
Economic Secretary Arsenio Balisacan earlier conceded that 2015 growth was now “realistically” seen at 6 percent.
“The Philippines continues to be among the strongest performers in the region, bucking the trend. In the first half of 2015, the only two major economies to accelerate their quarterly growth rates were the Philippines and Vietnam,” said Karl Kendrick Chua, World Bank Philippines senior country economist.
The bank said risks to economy this year included the impact of stronger El Niño phenomenon and weaker exports that could pull down growth considerably. The report said that in the last six years, the agriculture sector grew at an average rate of only 1.2 percent, the consequence of decades of policy distortions and underinvestment in key public goods such as irrigation.
“The growth in the Philippines is expected to remain robust. What we are looking ahead is a pick-up in growth at 6.5 [percent in 2016] and remain that in 2017. The source of that growth [would be led] by robust services growth sector as well as the impact of remittances…The government should look at the whole revenue picture,” said Sudhir Shetty, chief economist of World Bank in East Asia and Pacific region.
The World Bank also reduced its 2015 growth forecast for the East and Asia Pacific region to 5.7 percent from the previous 6.7 percent.
“What the slowdown reflects is the continuing gradual slowdown in China as well as other larger Asean economies like Malaysia and Indonesia,” Shetty said.
East Asia remains one of the main growth drivers of the world economy, accounting for nearly two-fifths of global economic growth, according to the report.
“Growth in developing East Asia Pacific continues to be solid, but the moderating trend suggests policy makers in the region must remain focused on structural reforms that lay the foundation for sustainable, long-term and inclusive growth,” said Axel van Trotsenburg, World Bank East Asia and Pacific regional vice president.
“These reforms include regulatory improvements in finance, labor and product markets, as well as measures that enhance transparency and accountability. These policies will reassure investors and markets, and help sustain growth that can help lift people out of poverty,” va Trotsenburg said.
The rest of developing East Asia is expected to grow 4.6 percent in 2015, similar to the rate last year. Commodity exporters such as Indonesia, Malaysia and Mongolia will see slower growth and lower public revenues this year, reflecting weaker global commodity prices, it said.
“Growth will ease, however, in many of the smaller economies. In Cambodia, lower agricultural output is hurting the economy, although growth will still be 6.9 percent this year. In Myanmar, severe flooding in July will likely drive down the pace of growth to 6.5 percent, from 8.5 percent in 2014. Pacific Island countries, meanwhile, will see moderate growth,” the World Bank said.