The Asian Development Bank on Wednesday reduced the 2016 economic growth forecast for the Philippines to 6 percent, amid global headwinds and the persisting impact of El Niño dry spell.
The Manila-based multilateral lender, in its ADB Development Outlook 2016, revised downward its 2016 gross domestic product growth projection for the country from the previous estimate of 6.3 percent.
It also reduced the 2017 growth projection to 6.1 percent from the previous 6.3 percent it made in December last year. Actual GDP growth reached 5.8 percent in 2015.
“While the Philippines continues to experience headwinds, including a strong El Niño weather event which has affected agriculture, as well as weak external demand, economic growth remains strong,” said ADB country director Richard Bolt.
“Sustaining this growth will require the continuation of policies that support infrastructure and human capital development, improvements to the investment climate, and better governance,” Bolt said.
ADB principal economist Donghyun Park said the adjustment of Philippine growth forecast was in line with the broader downgrade for developing Asia’s outlook.
“I must emphasize again and again, very much certain difficulties happen in the global environment that we are facing. Of course the large part of that is the growth of the advanced countries, [which is] more sluggish than expected,” Park said.
ADB economist for the Philippines Sona Shrestha agreed, saying “many of the external environment turned out to be lower than we anticipated.”
The inter-agency Development Budget and Coordination Committee, composed of government economic managers, earlier set the country’s 2016 growth target at a range of 6.8 percent to 7.8 percent.
ADB said risks to the growth outlook would come from the impact on agriculture and food prices of El Niño. “The outlook is subject to more uncertainty than usual as the outcome of the national elections will have an important bearing on policy,” it said.
“Election-related spending will support growth through May 2016 when national elections are scheduled. Net external demand will likely remain a drag on growth in 2016, though less than in 2015, and add to growth in 2017,” it said.
ADB said private consumption would be the main growth driver again this year. “Rising employment, higher government salaries, modest inflation and remittance inflows all point to robust consumer spending,” the bank said.
ADB also reduced its growth projection for Southeast Asia to 4.5 percent from the previous 4.9 percent.
Myanmar is projected to post the fastest growth of 8.4 percent, followed by Indonesia with 7 percent, Vietnam with 6.7 percent and the Philippines with 6 percent.
“Potential growth depends on both the growth of the labor force and the growth of labor productivity,” said ADB chief economist Shang-Jin Wei.
“While altering demographics is not something that can be accomplished within a few years, many developing economies still have tremendous room to use structural reforms to remove distortions in the labor, capital, and land markets, and to improve incentives for private sector investment, all of which lead to higher productivity and therefore higher potential growth,” she said.