MANILA, March 17, 2014 – The Philippines expects to maintain strong growth rates in the next three years despite the difficult global environment and the devastation unleashed by Typhoon Yolanda. Addressing the jobs challenge while ensuring timely and sustainable reconstruction in affected areas will help disaster survivors get back on their feet as well as mitigate future risks from calamities.
These are among the key findings of the Philippine Economic Update (PEU) released today by the World Bank.
World Bank Country Director Motoo Konishi said the US$8 billion reconstruction program launched recently by the government will reduce the negative impact of Typhoon Yolanda. This program, he said, will enable the country to build back better homes, schools, health facilities, utilities, infrastructure, and livelihoods destroyed by the super typhoon.
“Over the coming years, a comprehensive agenda to support the revival of agriculture and manufacturing will further strengthen the country’s resilience to calamities. Reforms to secure property rights, enhance competition, simplify regulations, and increase investments in health, education, and infrastructure will make this happen,” said Mr. Konishi.
“If people, particularly the poor, have good jobs, they are able to raise incomes, save more, and invest for the rainy days,” said Mr. Konishi.
World Bank’s pre-Yolanda forecast puts the Philippines’ GDP growth at 6.7 percent in 2014 and 6.8 percent in 2015.
Among the main findings of the report are:
• Growth is now projected at 6.6 percent in 2014 and 6.9 percent in 2015 which depends on the speed and scope of the reconstruction program
• The key challenge of the reconstruction process is to develop and enforce explicit standards for ‘building back better’ – for safe and resilient buildings and infrastructure
• An action-oriented, coalition-supported program on generating more and better jobs is needed
The disruption to economic activity in the affected areas will pull down growth through lower consumption, but a speedy implementation of the Reconstruction Assistance on Yolanda (RAY) program would partially offset the decline in consumption and keep GDP growth strong at 6.6 percent in 2014 and 6.9 percent in 2015.
World Bank Sector Manager for Sustainable Development, Ousmane Dione, supported the Government’s actions to improve the Philippines’ resilience to natural disasters and integrate existing disaster risk management programs into a single coherent framework. “Work is intensifying to put in place an integrated strategy for increasing resilience to climate change impacts and natural disasters at the household, and local and national government level, but also internationally, by participating in international partnerships to support increased resilience,” said Mr. Dione.
The PEU however also identified possible risks that could affect the country’s growth prospects.
Downside risks to growth, says the report, could come from a slower global recovery and the end of quantitative easing in the US. Slower growth in high income countries and in China would translate into lower external demand given the country’s strong linkages to the global supply chain for electronic parts. A slower Chinese economy could also stall the recovery of Philippine exports, given that China accounts for 12 percent of Philippine exports in 2012, says the report.
According to Karl Kendrick Chua, World Bank Senior Economist for the Philippines and the report’s main author, the scaling back of quantitative easing in the US would result in higher borrowing costs, lower capital inflows, and a decline in asset prices in the Philippines.
While highly leveraged businesses and households may be affected, the overall impact on the Philippines is expected to be manageable, given its strong current account surplus and high international reserves, flexible exchange rate system, and sustainable deficits and debt levels.
“The country continues to benefit from strong macroeconomic fundamentals, characterized by low and stable inflation, healthy external balances, and improving government finances. These strong fundamentals will continue to shield the economy from the impact of the global economic slowdown and financial market volatilities,” said Mr. Chua.
According to Rogier van den Brink, World Bank Lead Economist for the Philippines, a unique window of opportunity is open today for an action-oriented and coalition-supported program on job creation. “The country is benefiting from a pro-poor government. Second, the country stands to benefit from the strong growth prospects of a dynamic East Asia region. Third, past the half way mark, the reform momentum of the Aquino Government is accelerating. And finally, there is a growing consensus among a broad spectrum of stakeholders that the current opportunity to enact reforms marks a critical juncture in the country’s history. By undertaking structural reforms now, the economy can move towards a more inclusive growth path and create more and better jobs for the majority of the population,” said Mr. van den Brink.