The International Monetary Fund and the Asian Development Bank on Tuesday upgraded their growth projections for the Philippines this year, on robust domestic demand, strong private investment and government’s plan to improve infrastructure.
Both the IMF and ADB raised their separate 2016 growth forecasts for the Philippines to 6.4 percent from the previous estimate of 6 percent. IMF sees 2017 growth picking up to 6.7 percent from an earlier forecast of 6.2 percent while ADB said growth next year would reach 6.4 percent, faster than the previous forecast of 6 percent.
“The outlook for the Philippine economy remains favorable despite external headwinds. Real GDP growth is expected at 6.4 percent in 2016 and 6.7 percent in 2017 on continued robust domestic demand and a modest recovery in exports,” IMF said.
It said unemployment was projected to decline to 5.9 percent in 2016 and 5.7 percent in 2017, while inflation was expected to return to Bangko Sentral ng Pilipinas’ target range (of 2 percent to 4 percent) later this year and in 2017 as commodity prices stabilized and strong economic activity continued.
“The Philippine economy has continued to perform strongly. Real GDP regained strength from a slowdown in mid-2015 to record a robust 5.9 percent growth rate in 2015 and 6.9 percent in the first half of 2016,” it said.
The Philippine economy grew 6.8 percent in the first quarter, before expanding further by 7 percent in the second quarter. The first-half average of 6.9 percent was near the upper bound of the Duterte administration’s target range of 6 percent to 7 percent this year.
“Upside risks include stronger domestic demand spurred by low commodity prices and further improvements in budget execution. On the downside, lower growth in China, tighter global financial conditions, and a surge in global financial volatility could lead to capital outflows,” IMF said.
ADB country director for the Philippines Richard Bolt said “the outlook for the Philippine economy remains strong amid buoyant investment and domestic consumption.”
“If successfully implemented, the new government’s development agenda to step up spending on infrastructure, implement tax reforms and cut through red tape will sustain high growth rates and increase job creation,” Bolt said.
ADB’s country economist for the Philippines Aekapol Chongvilaivan said a major factor that could affect growth next year would be the slow recovery of major industrialized economies. “This will definitely put a little downward pressure in the economy in terms of remittances of the OFWs [overseas Filipino workers] and the decline in merchandise exports,” Chongvilaivan said.
ADB also expressed support for the proposed tax reforms, including lower corporate and personal income tax rates.
It said these measures were expected to improve the business environment and underpin further growth, with any reduction in tax revenues seen to be offset by a potential broadening of the value-added tax base, an increase in oil excise taxes and the streamlining of current tax incentives to investors.
Bolt said politics was not a factor in ADB’s projections. “We have to look at the numbers. So far we are not seeing the aggregate numbers, so I think we need to separate the political to economic performance. The economic performance is still strong so I think moving on, let’s be led by the numbers and so far as mentioned our projections re still good so let’s focus on that,” Bolt said.