MANILA, October 4, 2018 – Amidst rising global uncertainty and inflationary pressures, the Philippine economy is poised to remain strong and is projected to grow at 6.5 percent in 2018, 6.7 percent in 2019, and 6.6 percent in 2020, according to the Philippines Economic Update (PEU) released today by World Bank.
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.
Growth is expected to speed up in the second half of 2018 and in early 2019 due to rising government expenditure for infrastructure.
The PEU notes that 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.
“To manage these risks, maintaining strong macroeconomic fundamentals is key. At the same time, accelerating structural reforms to improve investments in physical infrastructure and make better use of capital, labor, and technology to increase productivity remains a very important agenda for the Philippines,” said Mara K. Warwick, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand. “In the long-term, sustaining high productivity growth is critical for the country to become a prosperous society free of poverty.”
“The Philippines is fairly resilient against capital outflows compared to many of its neighbors in the East Asia Region,” said Birgit Hansl, World Bank Lead Economist for Brunei, Malaysia, Philippines, and Thailand. “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.”
Also, high inflation rate poses another risk to growth which could dampen private consumption and investments.
“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,” said Rong Qian, World Bank Senior Economist. “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.”
According to the PEU, 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, 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.