ADB: Inflation risks imperil PHL GDP outlook


THE Asian Development Bank (ADB) may have maintained its growth forecast for the Philippines at 6 percent for this year, but warned that the impact of the Russia-Ukraine war could further push inflation upward in the coming months.

Based on the ADB’s Asian Development Outlook (ADO) 2022, the country’s GDP growth is expected to average 6 percent this year and 6.3 percent next year. Inflation is projected to pick up to 4.2 percent in 2022 and slow to 3.5 percent in 2023.

In a briefing on the ADO, ADB Southeast Asia Department Senior Regional Cooperation Officer Dulce Zara said their inflation expectations could change given higher oil prices.

“Our forecast right now is 4.2 percent but it may go up. We will adjust it depending on how big the impact is, but then, it is huge. It will affect inflation in the country simply because of the rising cost of oil,” Zara said. “It was at $70 per barrel in 2021, but now we’re looking at $100 per barrel.”

In the same briefing, ADB Macroeconomic Research Division Director Abdul Abiad said, in terms of growth, the Philippines did not have direct trade linkages with Eastern Europe enough to merit a downgrade in GDP growth.

Abiad said the Russia-Ukraine war’s impact on the Philippine economy will mainly be through inflation. The country is a net oil importer and is a net food importer, especially for wheat which does not grow in tropical countries like the Philippines.

Offsetting factor

HOWEVER, any negative impact of the crisis in Eastern Europe will somehow be offset by the reopening of the Philippine economy. Abiad said this reopening is helping the economy recover.

“It turns out that Omicron is not as severe and as you can see, the Philippines is really starting to open up. There’s a lot more economic activity taking place and there’s an offsetting factor that opening up from Covid is taking place and that’s going to allow domestic demand to recover to both consumption and investment,” Abiad explained.

The report said some domestic demand may also come from election-related spending ahead of the national elections in May, which, the report said, could provide some “modest lift to aggregate demand.”

Further, ADB said, private investment indicators remain favorable for the Philippines. ADB noted that capital goods imports have posted double-digit growth and the manufacturing purchasing managers’ index increased to 52.8 in February 2022.

The Manila-based multilateral development bank said its confidence also stems from higher public spending which is expected to reach 11.5 percent this year, exceeding that of 2021.

ADB said higher public investment in large projects will continue to boost growth, with the government aiming to sustain infrastructure spending at over 5 of GDP in 2022.

“The main downside risks to the outlook stem from the unpredictable sequence of global events triggered by the Russian invasion on Ukraine,” ADB said.

“Heightened and extended geopolitical tensions will dampen global growth, including in advanced economies, particularly Europe and the United States, which are among the Philippines’s key export markets,” it added.

School closures

THE ADB also estimated that about 7 percent of the expected learning of students has been lost due to school closures. Abiad said this assumed that no remedial measures to recover the lost learning.

This amount of lost learning will reduce the lifetime earnings of students by $3.2 trillion which is already equivalent to 13 percent of developing Asia’s GDP in 2020.

The impact, Abiad said, could also translate to a 47-percent wealth gap in earning losses between the poorest and richest students. The earning losses could also be 28 percent higher for girls than boys due to the higher returns in girl’s education.

“Students from the poorest quintile are expected to lose 33 percent more learning than students from the richest quintile,” Abiad said.

In the Philippines, the National Economic and Development Authority (Neda) earlier estimated that educational losses could reach P11.025 trillion. This includes P230 billion lost in 2020 and some P10.795 trillion in the next 40 years.

Using US data adjusted for Philippine education levels, Neda estimates that in the Philippines, online and modular learning is only 37 percent as effective as face-to-face learning.

While this tempers the full impact of total school closures, the prolonged use of distance learning will lead to lower future productivity and consequently lower wages.

“The one-year school closure will cost the economy 230 billion pesos in 2020, and its impact over the next 40 years of the students’ lifetimes in the labor force is estimated at 10.7 trillion. This impact on productivity is likely to be permanent over the person’s lifetime,” Socioeconomic Planning Secretary Karl Kendrick T. Chua earlier explained.

Image credits: Junpinzon |


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