MANILA, Philippines — The slowdown in the US and Europe is affecting Philippine exports but the country’s strong macroeconomic fundamentals are cushioning the impact of the global economic turmoil on the local economy, according to the World Bank's Philippine quarterly update (PQU).
The report noted that the Philippines’ external position and macroeconomic fundamentals remain strong. The current account surplus increased by 20 percent in the second quarter, owing to higher remittances and net services receipts.
“Net foreign direct investments increased in the first half and foreign reserves have surged to record highs thanks to strong capital inflows as well as sustained growth of remittances and income from investments abroad,” says the WB report.
Attracted by relatively higher growth prospects and yield differentials, net foreign portfolio inflows soared through August, at US$3.1billion, more than triple last year’s amount, the report says.
“To better insulate the Philippine economy from external shocks, it is important to maintain strong macroeconomic fundamentals and improve its competitiveness through diversifying exports, strengthening domestic competition, and improving productivity of the services sector,” said World Bank Economist Soonwha Yi. The report says in view of the slower growth and weaker economic outlook in advanced economies, the Philippines is forecast to grow at 4.5 percent in 2011 and 5.0 percent in 2012, a revision from the previous forecasts of 5.0 percent and 5.4 percent, respectively, for both years.
“Private consumption is expected to grow steadily, buoyed by lower unemployment, higher government spending and sustained remittances,” said Ms. Yi. “With ample fiscal space, the government is expected to boost spending in the second half and catch up on delayed implementation of infrastructure projects.”
WB noted that government’s zero-based budgeting process has generated sufficient fiscal space to scale up spending on priority social and economic agenda.
The report says that domestic investment is projected to expand to 21.8 percent of GDP for 2011 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. (EHL)