Guarded optimism
The World Bank had been quite conservative in its economic assessments of developing member-countries, so it was a surprise for the multilateral agency to be bullish on the Philippine economy. The bank expects the Philippines’ gross domestic product (GDP) growth to land near the middle of the government target range of 6.5 to 7.5 percent for 2017. Additionally, it is confident that the government can sustain economic gains such that these will be more inclusive, or be felt by a bigger segment of the population.
The World Bank’s April 2017 Philippine Economic Update report forecasts a 6.9-percent GDP growth for this year and 2018. Growth is seen slightly slowing to 6.8 percent in 2019. The World Bank’s forecasts for 2018 and 2019 may be below the government’s target range of 7-8 percent from 2018 to 2022, but will continue to be among the highest globally.
However, there is a caveat. World Bank Philippines lead economist Birgit Hansl told a media briefing that the lender was bullish on the Philippines given the Duterte administration’s commitment to ramp up public infrastructure spending, which is key to sustaining the country’s growth momentum through 2018 and reinforcing business and consumer confidence. Hansl noted that the implementation of the planned infrastructure projects could generate positive spillover effects for the rest of the economy, spurring additional business activity, accelerating job creation, and ultimately contributing to higher household consumption and poverty reduction.
World Bank Philippines country director Mara K. Warwick had already noted that strong growth in recent years was accompanied by job generation and a declining number of people living in extreme poverty, as well as economic growth becoming “more inclusive.” Indeed, unemployment fell to a historic low of 4.7 percent in 2016 as 1.4 million net jobs were created, while poverty incidence among Filipinos dropped to 21.6 percent in 2015 from 25.2 percent in 2012, or equivalent to 1.8 million Filipinos lifted out of the poverty line during the three-year period.
But not everything is rosy moving forward. As former economic planning chief Cielito Habito has pointed out in his columns in the Inquirer, there are dark clouds over the economy. He cited the rise in inflation to more than two-year highs, persistent unemployment, and slowing economic growth. Then there is the uncertainty about the global economy, particularly that of the United States given President Donald Trump’s protectionist tendencies.
The crucial thing now is for Congress to pass the comprehensive tax reform program of the Duterte administration that is needed to help finance an ambitious infrastructure plan. The government intends to ramp up infrastructure spending to the tune of P8 trillion over the next five years, seeking to spur development and ease traffic congestion by building new roads, bridges, railways and airports. These projects, in turn, will generate jobs to address the unemployment problem.
In the meantime, the Philippines can still bank on two growth drivers—remittances from overseas Filipinos and earnings from the BPO sector. Cash sent home by Filipinos living and working abroad reached a record $26.9 billion in 2016, up 5 percent from $25.61 billion in 2015. Last January, the figure rose 8.6 percent to $2.17 billion—the first time that cash remittances exceeded the $2-billion mark at the start of the year. Revenues from the BPO sector have been projected to overtake remittances from overseas Filipinos this year. In 2016, the industry generated over a million direct jobs and more than $20 billion in revenues.
So long as the billions of dollars from overseas Filipinos continue coming in and the billions of dollars earned by BPO workers remain here, consumer spending will sustain economic growth. These will augment household consumption and ensure the continued expansion of other economic segments, among them the property and retail sectors. As it is, the economic view now should be one of guarded optimism.
