The Philippines’ economic growth forecast for 2023 has received an upgrade from the World Bank.
Despite the challenge of high inflation, the country is expected to experience resilient domestic demand driving its economic expansion.
According to the latest economic update by the World Bank in June 2023, the projected gross domestic product (GDP) growth rate for the Philippines this year stands at six percent.
This surpasses the previous forecast of 5.6 percent provided in the April East Asia and the Pacific Economic Update.
While the GDP forecast has been revised upward, it is important to note that the World Bank predicts slower growth for the Philippines this year compared to the 7.6 percent growth witnessed in the previous year.
The World Bank’s revised GDP forecast aligns with the lower end of the government’s target range of six to seven percent.
Looking ahead, the World Bank expects the Philippine economy to grow by 5.9 percent annually in both 2024 and 2025.
During a virtual briefing held yesterday, Ralph Van Doorn, a senior economist at the World Bank, highlighted that the revised GDP forecast reflects the resilient domestic demand observed during the first quarter of this year.
In the first quarter, the Philippine economy recorded a growth rate of 6.4 percent.
Van Doorn emphasized that despite the challenging global conditions, strong domestic demand is anticipated to be the driving force behind the country’s economic growth this year.
Factors such as improved employment, steady remittances, enhanced consumer sentiment, and an anticipated decline in headline inflation are expected to support consumption growth.
The World Bank projects that headline inflation in the Philippines will average 5.7 percent, remaining above the Bangko Sentral ng Pilipinas’ target range of two to four percent throughout this year. However, inflation is expected to ease to 3.6 percent in 2024 and three percent in 2025.
In May, inflation experienced a decrease for the fourth consecutive month, settling at 6.1 percent due to slower increases in transportation and food prices.
The average inflation rate for the January to May period stood at 7.5 percent.
The World Bank notes that “headline inflation is projected to stay above the target in 2023, driven by elevated food prices and underlying price pressures resulting from robust demand.”
Aside from consumption, services are expected to play a crucial role in driving growth, benefitting from the reopening of China, the recovery of international tourism, and the outsourcing decisions of foreign companies seeking cost reductions in the Philippines.
Recent reforms promoting greater foreign participation in the economy, such as amendments to the Public Service Act, Foreign Investment Act, and Retail Trade Liberalization Law, are expected to attract foreign investments and support medium-term growth.
However, Van Doorn highlighted potential downside risks to the country’s growth.
These include higher-than-expected global inflation, tighter global financing conditions, and an escalation of geopolitical tensions, all of which could disrupt global activity and lead to a sharper-than-anticipated global slowdown.
He also identified domestic risks, such as the threat of El Niño and supply chain bottlenecks, which could once again pose challenges to food supply and exert upward pressure on food prices.
Given the persistent global and domestic risks that could hinder recovery and poverty reduction, Ndiamé Diop, the World Bank country director for Brunei, Malaysia, Philippines, and Thailand, stressed the importance of sustaining improvements in social protection.
This is crucial to support families, especially the poor and vulnerable, in coping with economic difficulties amid the global slowdown, budget constraints, high commodity prices, and climate-related risks.
Van Doorn emphasized that addressing inflation would require implementing measures such as reducing tariff and non-tariff barriers, strengthening domestic supplies, and providing support to the agriculture sector through extension services, seeds, and fertilizers.
The World Bank also underscored the benefits of investing in climate change initiatives, particularly within the agriculture sector, to strengthen economic recovery and achieve long-term growth.
Moreover, Van Doorn emphasized the need to promote investments through the implementation of recently approved investment reforms. He further highlighted that transitioning to low and zero-carbon alternatives would not only address energy demand but also improve energy security, thereby supporting sustainable long-term growth.
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