July 18, 2018, 11:54 pm
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Economy at risk of overheating

The economy is at risk of overheating, thus investment in both capital assets and human capital is urgently needed to increase the economy’s productive capacity, a report released by the World Bank said.

According to the World Bank’s Philippine Economic Update, the economy is currently growing at its potential rate, and the average capacity utilization in the manufacturing industry remains high, with all major industries operating at near full capacity.

It said  unemployment reached record lows in recent years, signaling less spare labor capacity  although underemployment remains high.

“Potential signs that the economy is overheating include the rise of core inflation, the high capacity utilization rate in the manufacturing sector, and the tight labor market,” the report said.

“In an environment of increasing fiscal spending and continued high credit growth, the risk of the economy overheating is increasing,” it added.

The report also said  investments in infrastructure and education, skills, and health, are not only key to sustaining high growth but will also ensure that poor and vulnerable families have access to better job opportunities. 

It added delivering inclusive economic growth through good jobs remains the country’s most pressing challenge.

The report projects the  economy will remain strong, growing at an annual rate of 6.7 percent in both 2018 and 2019.

It cited several domestic risks for the Philippines: higher inflation, an overheating of the economy as earlier mentioned, and high fiscal deficits. 

External risks consist of greater policy uncertainty related to growing trade protectionism and increasingly inward- looking sentiments in several advanced and emerging economies, and potential market volatility from faster-than-expected US Federal Reserve rate normalization.

“The main challenge facing the Philippines today is not unemployment, but rather the poor quality of jobs in the labor market,” said Mara Warwick, World Bank country director for Brunei, Malaysia, Philippines and Thailand.

“High-quality jobs and faster growth of real wages are the missing links to higher shared prosperity in the Philippines,” Warwick  added.

The report said  more can be done to create high-quality jobs in the Philippines. 

The government needs to affirm its commitment to the promotion of competition, secure property rights, less regulatory complexities, and an improved investment climate, it said.
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