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NEWS UPDATES Asean Affairs     7  October  2011                       

Philippines growth rate cut

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The World Bank has cut its economic growth forecast for the Philippines for this year and next year mostly because of the slowdown in the US and Europe.

In its Philippine Quarterly Update, the Washington-based lender projected that Manila’s gross domestic product would grow 4.5 percent this year, down from an earlier forecast of 5 percent.

For next year, the World Bank cut its forecast to 5 percent from an earlier estimate of 5.4 percent.

The lender’s projection is lower than the government’s target of between 7 percent and 8 percent.

The World Bank blamed the downward revision on the slower growth in the first half and the weaker economic outlook in advanced economies.

In the first half of the year, Philippine GDP expanded by only 4 percent.

“Our revised growth projection of 4.5 percent largely hinges on the government’s ability to carry out the implementation of delayed projects, and achieving an orderly resolution of the eurozone debt crisis and improved global trade environment,” the bank said.

The greater-than-expected weakness in global economic activity is estimated to cut down the bank’s growth forecast by at least 0.1 percentage points while subdued government spending is estimated to pull down the forecast by 0.2 percentage points—translating to a reduction of 0.3 percentage points from its forecast for a 4.2-percent GDP growth in case both events materialize.

Soonwha Yi, World Bank economist, said private consumption is expected to grow steadily, buoyed by lower unemployment, higher government spending and sustained remittances.

“With ample fiscal space, the government is expected to boost spending in the second half and catch up on delayed implementation of infrastructure projects,” Yi added.

The World Bank said the government’s zero-based budgeting process has generated sufficient fiscal space to scale up spending on priority social and economic agenda.

Domestic investment is projected to expand to 21.8 percent of GDP this year from 20.5 percent in 2010, and to improve further to 23.1 percent in 2012, as the government accelerates the pace of its capital outlays and as business sentiment turns more positive.

“On the supply side, growth for the full year 2011 is expected to come from the services and industry sectors, favored by a more upbeat business sentiment and with the full roll-out of infrastructure-related projects,” Yi said.

Ulrich Lachler, lead economist of the World Bank said the Philippines is enjoying relative political stability and a strong fiscal position. Capital inflows are expected to continue, but foreign direct investment is projected to moderate as investors have become more cautious in light of the recent financial turmoil, he said.

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