The World Bank on Wednesday downgraded the 2017 growth forecast for the Philippines to 6.6 percent from the previous estimate of 6.8 percent because of the sluggish pace of the government’s infrastructure program.
The Washington-based multilateral lender said despite the lower growth forecast, the country’s 6.6-percent expansion this year would be strong enough to outperform most of its peers in the Asia-Pacific region.
“In 2017, the [Philippine] economy is projected to expand at a slightly slower pace than 2016, at 6.6 percent. The delay in the anticipated push of the planned government infrastructure program has been contributing to the moderation of fixed capital formation growth, softening the growth prospect for the year,” World Bank said in its East Asia and Pacific economic update report for the month of October.
“Nevertheless, it is expected to continue to be the fastest growing of the large Asean economies,” the bank said.
The forecast for the Philippines this year is slightly slower than 6.7 percent for China, but is faster than the 5.1 percent for Indonesia, 5.2 percent for Malaysia, 3.5 percent for Thailand and 6.3 percent for Vietnam.
The World Bank also sees the Philippines growing 6.7 percent in 2018, faster than China’s 6.4 percent, Indonesia’s 5.3 percent, Malaysia’s 5 percent, Thailand’s 3.6 percent and Vietnam’s 6.4 percent.
The Philippines is seen to grow 6.7 percent in 2019, faster than 6.3 percent for China, 5.3 percent for Indonesia, 4.8 percent for Malaysia, 3.5 percent for Thailand and 6.4 percent for Vietnam.
The World Bank said the medium-term growth outlook remained positive and is expected to be anchored in the growth of the Philippines’ main trading partners which would lead to a higher external demand.
Imports would remain elevated due to necessary imports of intermediate and capital goods, including for infrastructure program.
“As the public infrastructure program gains traction, capital outlays and construction activities are expected to rise. Consumption growth is expected to remain firm contingent on sustained remittances and expanding credit contributing to improving income levels,” the bank said.
It said local elections in 2019 would likely boost domestic activities as early as the latter half of 2018.
The bank warned that a faster-than-expected increase in interest rates in advanced economies, including the United States, remained a source of external risk. It said expectations of international interest rate tightening might lead to renewed capital outflows and volatility in the foreign exchange market.
“The pace of economic growth could be slower if the government is unable to timely deliver on its planned infrastructure program. Complementary reforms to address budget execution and implementation bottlenecks and to ensure high quality of spending are needed,” it said.
The banks said that maintaining fiscal sustainability over the medium-term would also depend on the success of the priority tax reforms.
The economy grew 6.4 percent in the first quarter, slower than a year ago due to sluggish spending, before slightly picking up to 6.5 percent in the second quarter. This brought GDP growth in the first half to 6.4 percent, near the lower limit of the target range of 6.5 to 7.5 percent this year.
But economic managers predicted that growth could be faster in the second half as the Duterte administration ramped up its fiscal spending particularly on infrastructure projects under its ambitious P8.44-trillion “Build, Build, Build” program.