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Given the ongoing world economic recovery, the Philippines is poised for a better 2010 but risks remain, the Asian Development Bank (ADB) said.

ADB, in one of its reports included in the ADB Regional Forum on the Impact of Global Economic and Financial Crisis, said election spending would help increase consumer spending in 2010 as populist policies and spending by political parties would infuse money into the household sector.

Reconstruction and rehabilitation efforts would boost the economy in 2010, although the effects of typhoons Ondoy and Pepeng would have a negative effect in fourth quarter growth of 2009, ADB said.

The government is yet to announce Q4 2009 growth.

It said ratings upgrade for the Philippine economy such as the raised Moody’s outlook due to a resilient financial system would help boost confidence in the economy.

"We believe that economic activity in the Philippines will spring back starting in Q4 of 2009," it said.

The bank said investor sentiments have already improved compared to Q4 of 2008 and Q1 2009; while consumers now "seem less negative about the economy."

"The BSP (Banko Sentral ng Pilipinas) consumer expectations index was at -31.9 percent for the quarter ending in September 2009 rather than -34.2 percent for the previous quarter. High and middle income groups were more optimistic about the future than the low income group which stayed unchanged. 18 percent of the people surveyed also consider Q3 2009 as a favorable quarter to purchase big ticket items," ADB cited.

ADB said that there is no urgency in tightening monetary policies because the expected rise in inflation in 2010 is not yet a serious concern.

"There is considerable slack in resource utilization in the country. This limits the risk that domestic inflation might surge. An early tightening of monetary policy might also aggravate the risk of undesired inflows of short term capital. As it is, the ratio of financially mobile capital to reserves is uncomfortably high, further inflows would aggravate this and reduce economic resilience," the report said.

The bank said that fiscal policy should remain supporting growth, especially in dealing with reconstruction and rehabilitation efforts due to the typhoons Ondoy and Pepeng that hit the country in late 2009.

"In the longer term, a legally bidding framework to govern fiscal policy might need to be developed rather than piecemeal measures to consolidate the large deficit," the report said.

But, ADB said, transmission of stresses from the global environment to the country is a concern.

Signs of upturn would boost investment sentiments that would spur higher capital inflows. But "fear of over inflow of capital could put pressure on the currency to appreciate, making exports less competitive," ADB said.

The Manila-based lender said the sustainability of capital flows depends on May elections and how the next administration manages its economic agenda.

"Inventory restocking is boosting demand for exports…but exports will be limited in the next few years by sluggish external demand," ADB said.

The ADB report said the narrow base of Philippine exports "could fall to competition" from other emerging markets such as China and Vietnam.

"There is little diversity in export oriented market. About 50 percent of exports are electronic goods and the improvement from 2000 has been only slight…The greater the dependence on exports and less exposure to domestic demand, the less resilient the economy is likely to be," the report said.

ADB said the country’s large land mass and population offer a sizable domestic demand that could serve as an effective shock absorber.

"While the strength of remittances has buffered the economy during this crisis, the extent of dependence on such remittances might, in a broader view, be a concern," the report said.

Citing a study of the Philippine Institute of Development Studies, it said 39 percent of households with family members working abroad have had "at least one member return to retrenchment," making the sustainability of remittances questionable.

The report said the country must diversify and not be too dependent on remittances and exporting electronic products. "A revamped and unified promotion agency could be tasked to develop a strategy of diversification," ADB said.

Also, the country must improve its supply side by creating new sources of growth and expanding infrastructure construction. The government must also curb corruption that hinders growth.

A higher public debt imposes constraints on the government’s use of fiscal tools, the bank said, because there is little room for fiscal action. "Actual public debt is still quite high at 63.6 percent," it said.

ADB said that the country would be more resilient if it would become a net produce of energy rather than being reliant to foreign energy due to low energy production and low high energy consumption.

The bank earlier adjusted its 2009 growth outlook for the Philippines to 1 percent but maintained its 3.3 percent growth projection. However, the ADB’s 2010 outlook for the country is low compared to the bank’s high outlook in other Asian countries.

On a regional level, ADB president Haruhiko Kuroda said that the Asian region is showing a V-shaped recovery with a 6.6 percent outlook for 2010 and 4.5 percent growth in 2009.

He, however, cautioned that there still fragility on the ongoing recovery, wherein "external demand for Asian goods and services, including tourism, may remain sluggish for quite some time" until advanced economies fully recover in the economic crisis.

Kuroda said that exit strategies in fiscal stimulus must be carefully timed. ADB added that increased integration efforts in Asia is necessary to sustain growth and cushion the region against future shocks.

Asian economies must sustain high growth rates to reduce poverty, he said.

"If developing countries in Asia continue high growth, as high as they had attained in 2007 and 2008, there would have been substantially more poverty reduced. But since growth rate significantly decelerated, some countries showed negative growth. Certainly poverty reduction in some countries was stalled and would have been seriously affected," Kuroda said.

But with the expected V-shaped recovery, Kuroda said that they are seeing significant poverty reduction in Asia and Pacific.

Kuroda added that hey are confident that Asian countries that are posting fast growth rates would achieve their Millennium Development Goals (MDGs) on time.

"But, on the other hand, for some countries, particularly in the non-income related MDGs, it may be difficult and would require substantial effort by the DMC government and the International community to accelerate the process of achieving the MDGs," he said.

The United Nations earlier said that the Philippines is lagging behind in attaining its MDGs, especially in eliminating poverty and hunger (goal 1) , achieving universal education (goal 2), reducing maternal deaths (goal 5) and combating HIV and AIDS (goal 6).

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