MANILA, Philippines - The World Bank
has downscaled its growth outlook for the Philippines to four percent from its
earlier forecast of 4.5 percent in 2012, citing the direct and indirect impact
of the ongoing financial turmoil in the euro zone.
The World Bank, in its latest Global
Economic Prospects (GEP) report, said the prospects of an economic slowdown in
China would likewise impact on the growth rate of the Philippines and the rest
of East Asia.
It noted that East Asian nations rely
heavily on remittances, which account for 10.7 of GDP in the case of the
Philippines.
Though financial developments in the
euro zone relatively calmed in the first four months of 2012, a serious
deterioration is still a distinct possibility, the World Bank pointed out.
“In such a scenario, growth in East
Asia and the Pacific could slow by as much as two to four percentage points due
to reduced import demand, tighter international capital conditions and
increased precautionary savings abroad and within the region,” the report said.
Tourism and remittances play important
ancillary roles in the non-merchandise portions of East Asia’s current account
position. Among developing regions, East Asia is the largest destination for
global tourism arrivals, having accommodated some 116 million visitors in
calendar year 2010, according to the United Nations World Tourism Organization.
Also, worker remittances provide a
foundation for consumer spending and, in some cases, investment for countries
such as the Philippines, Vietnam and smaller island economies. Inflows
diminished at the peak of the crisis in 2009, but have since recovered to
exceed pre-crisis levels by a wide margin.
The Philippines is the largest
recipient of worker remittances in East Asia, accounting for 10.7 percent of
the country’s GDP. It has since bounced back 24 percent since 2009, and is
considered the fourth largest globally.
“In the medium term, the Philippines, where
the government is determined to boost growth from the less-than-expected 3.7
percent results of 2011, hopes to use fiscal space to enhance investment and
consumer spending. Portfolio investment has returned to these countries,
supporting private capital outlays,” the World Bank said.
Meanwhile, simulations by the World
Bank suggest that growth in East Asia and the Pacific could slow by as much as
1.5 to 2.3 percentage points.
“Countries heavily reliant on external
remittances (Fiji, the Philippines and Vietnam), tourism (Cambodia, Fiji,
Malaysia, Thailand and Vietnam), and commodities (Indonesia, Malaysia and
Thailand) as well as those with high-levels of short-term debt or medium term
financing requirements (Malaysia) would be hardest hit,” the report outlined.
A slowdown in China would spill-over
into the rest of the region in the form of reduced demand for exports, and
commodity dependent countries would be especially at risk of a slowdown in
China’s investment. Though a soft landing is the most likely growth outturn, a
more rapid-than-expected slowing is possible.
Meanwhile, the World Bank forecasts
that developing country growth will slow to a relatively weak 5.3 percent in
2012, before strengthening to 5.9 percent in 2013 and six percent in 2014.
Global GDP is projected to rise 2.5
percent in 2012, three percent in 2013 and 3.31 percent in 2014, it added.
However, should the situation in
Europe deteriorate sharply, no developing region would be spared, the World
Bank said. Developing Europe and Central Asia is especially vulnerable because
of its close trade and financial ties with high-income Europe, but the world’s
poorest countries will also feel the fallout - especially countries that are
heavily reliant on remittances, tourism or commodity exports or that have
high-levels of short-term debt.
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