OREANDA-NEWS. Growth in the Philippine economy is set to pick up in 2015 as government expenditure expands and both private consumption and investment remain strong, says a new Asian Development Bank (ADB) report.

ADB’s flagship annual economic publication, Asian Development Outlook 2015 (ADO), released today, forecasts Philippine gross domestic product (GDP) will grow by 6.4% in 2015 and 6.3% in 2016. In 2014, the economy expanded by 6.1%, decelerating by about 1 percentage point from the year earlier on a slowdown in government spending.

“Factors that powered private consumption in 2014—growth in employment, modest inflation, and higher inflows of remittances—are expected to continue to support solid growth this year,” said Richard Bolt, ADB Country Director for the Philippines. “While the economic outlook is bright there is a need to stimulate employment growth and continue efforts to address gaps in infrastructure.”

Private consumption remained the central driver of the economy in 2014, accounting for more than 60% of GDP growth. Private construction rose at a double-digit pace, driven by demand for offices, retail space, and housing. Investment in machinery and transport equipment expanded as well.

However soft government spending in the wake of a Supreme Court ruling against certain government funds weighed on the economy, while damage from Typhoon Haiyan and other storms hurt agricultural output for much of last year. Inflation quickened to 4.9% in August, the highest in 3 years, but then eased on better harvests, additional rice supplies from imports, and plunging global oil prices to average 4.1% in 2014.

Growth is projected to accelerate this year on buoyant private consumption, a solid outlook for investment and exports, and recovery in government spending. The report sees downside risks should recovery in industrial countries stumble, and in potential power shortages on the main Philippine island of Luzon in the summer of 2015.

A key factor in the outlook is the budgeted rise in government spending to more than 18% of GDP—the biggest ratio to GDP in at least a decade. The budget boosts allocations for social services and infrastructure and directs additional support for the development of agriculture, tourism, and manufacturing. A plan approved last October to rehabilitate areas devastated by Typhoon Haiyan will accelerate reconstruction spending.

Inflation is projected to slow to average 2.8% in 2015, due largely to lower fuel prices, although a potential El Ni?o weather effect in the first half, along with possible power rate hikes, could put upward pressure on prices.

The ADO also highlights the need to stimulate investment and generate more and better jobs. Even when the unemployment rate fell to 6.6% in January 2015, the lowest in 10 years, 2.6 million people remained jobless, half of them aged 15–25 years, and a further 6.5 million were underemployed. Creating good jobs in all sectors is key to reducing poverty.

Inadequate infrastructure is a constraint on investment and the government aims to double outlays on infrastructure from 2% of GDP over the past decade to 4% in 2015 and further to 5% in 2016. Further progress on the government’s public-private partnership program will help to achieve this ambitious target. Achieving higher levels of investment also requires reforms to enhance competition, improve regulatory efficiency, and reduce the administrative costs of doing business.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region.