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World Bank cuts growth forecast for PHL, citing supply disruptions

(Photo by Nonie Reyes)

DESPITE the recent recovery in household consumption, the Philippine economy is expected to post slower growth this year and in the next two years, according to the latest estimates of the World Bank.

In its Global Economic Prospects (GEP) report, the Washington-based lender said the Philippines is expected to post a growth of 5.7 percent in 2022 and 5.6 percent in the next two years.

The GDP forecast this year is 0.2 percentage points lower than its forecast in January and the forecast for 2023 is lower by 0.1 percentage points. The growth estimate for 2024 is new.

“Growth is projected to be 5.7 percent in the Philippines in 2022, supported by sustained public investment and recovering household consumption, and then moderate to 5.6 percent in 2023,” the World Bank said.

“Median annual headline consumer inflation in the region is expected to surpass 3 percent in 2022 [above previous expectations], with inflation now envisioned to overshoot the upper bound of inflation targets in several economies [Mongolia, the Philippines, Thailand],” the report added.

The GEP said the Philippine economy could be affected by shortages of essential commodities and inputs. This could lead to disruptions in production and weak economic recovery.

The World Bank said this is expected to happen to East Asia and the Pacific countries that are highly dependent on food and fuel imports. Aside from the Philippines, these countries include Cambodia, Mongolia, Thailand, and many Pacific Island economies.

“Developing economies will have to balance the need to ensure fiscal sustainability with the need to mitigate the effects of today’s overlapping crises on their poorest citizens,” said Ayhan Kose, Director of the World Bank’s Prospects Group.

“Communicating monetary policy decisions clearly, leveraging credible monetary policy frameworks, and protecting central bank independence can effectively anchor inflation expectations and reduce the amount of policy tightening required to achieve the desired effects on inflation and activity,” Kose added.

Global growth is expected to slump to 2.9 percent in 2022 from 5.7 percent in 2021. This is significantly lower than the 4.1 percent that was anticipated in January.

It is expected to hover around that pace over 2023 and 2024, as the war in Ukraine disrupts activity, investment, and trade in the near term, pent-up demand fades, and fiscal and monetary policy accommodation is withdrawn.

As a result of the damage from the pandemic and the war, the level of per capita income in developing economies this year will be nearly 5 percent below its prepandemic trend.

“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” said World Bank Group President David Malpass.

“Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality,” he added.

The World Bank said growth in advanced economies is projected to sharply decelerate from 5.1 percent in 2021 to 2.6 percent in 2022—or 1.2 percentage point below projections in January.

Growth is also expected to moderate to 2.2 percent in 2023, largely reflecting the further unwinding of the fiscal and monetary policy support provided during the pandemic.

Among emerging markets and developing economies, growth is projected to fall to 3.4 percent in 2022 from 6.6 percent in 2021. This is significantly lower than the annual average of 4.8 percent between 2011 and 2019.

“The negative spillovers from the war will more than offset any near-term boost to some commodity exporters from higher energy prices,” the World Bank said.

Forecasts for 2022 growth have also been revised down in nearly 70 percent of emerging markets and developing economies (EMDE), including most commodity importing countries as well as four-fifths of low-income countries.

The war in Ukraine has led to a surge in prices across a wide range of energy-related commodities. Higher energy prices will lower real incomes, raise production costs, tighten financial conditions, and constrain macroeconomic policy especially in energy-importing countries.

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