THE Asian Development Bank (ADB) raised its growth forecast for the Philippines to 6.5 percent this year on the back of a better-than-expected first quarter performance and robust consumption spending in the second half of 2022.
In its Asian Development Outlook Supplement (ADOS) released on Thursday, ADB raised its GDP growth forecast from the 6 percent it initially estimated in April 2022. It may be noted that the Philippine Statistics Authority (PSA) released the official first-quarter GDP estimates of the country, which reached 8.3 percent, in May 2022.
ADB Philippines Country Director Kelly Bird told BusinessMirror that the increase in consumption spending will also allow the economy to post a growth of 6.5 percent or better this year. For 2023, ADB maintained its 6.3-percent forecast.
“Our growth rate for 2022 takes into account the projected inflationary effects for this year, though offsetting some of the rebound in consumer spending in the second
half. However, the economy is expected to maintain strong growth momentum that would keep growth at or above 6.5 percent this year,” Bird said in an email.
ADB also raised its inflation estimates for the Philippines to 4.9 percent this year and 4.3 percent next year. In April, ADB estimated inflation would average 4.2 percent this year and 3.5 percent.
These, Bird said, are consistent with global inflation expectations. But he expressed confidence that the recent hike in interest rates by the Bangko Sentral ng Pilipinas (BSP) would stem inflation increases.
In June 2022, inflation reached 6.1 percent, the highest since October 2018 when inflation reached 6.9 percent. The rise in commodity prices was driven by food and fuel prices. (Full story here: https://businessmirror.com.ph/2022/07/06/june-inflation-at-6-1-as-food-prices-surge/)
“The main factors underlying this increase in inflation are coming from the supply side, through the disruption to global supply chains from the Covid-19 pandemic and commodity supply shocks caused by Russia’s invasion of Ukraine. BSP’s increase in its policy rate should adequately mitigate rising inflation expectations going forward,” Bird told BusinessMirror.
Overall, the ADB said the country’s growth would also be driven by the large public infrastructure projects that are under way, as well as a slew of private sector indicators. These include the Purchasing Managers’ Index (PMI), industrial production, and imports, all of which “continue to expand.”
However, PSA data showed the Volume of Production Index in May grew only 1.9 percent (story here: https://businessmirror.com.ph/2022/07/08/manufacturing-production-posts-1-9-growth-in-may/) while the country’s trade deficit widened by 78.6 percent (Story here: https://businessmirror.com.ph/2022/07/12/costly-fuel-food-to-bloat-trade-gap/).
Nonetheless, Bird said, the legislative reforms such as the Public Service Act, retail sector and foreign investment combined with other reforms such as the tax measures TRAIN and CREATE would allow the economy to grow faster.
“Earlier reforms setting up the Philippine Competition Commission and ARTA have created a competitive investment framework and should encourage further foreign investments in the Philippines, lift the manufacturing and industry sectors, and sustain the Philippines’ growth rate above 6 percent. Going forward, further specific sector reforms in utilities will be necessary to maximize the gains from these recent reforms,” Bird added.
Meanwhile, ADB lowered its economic growth forecast for developing Asia and the Pacific to 4.6 percent this year due to slower expansion in the People’s Republic of China (PRC), more aggressive monetary tightening in advanced economies, and fallout from the continued Russian invasion of Ukraine.
The outlook compares with a projection of 5.2 percent issued by ADB in April. The bank also raised its forecast for inflation in the region, amid higher prices for food and fuel.
Developing Asia and the Pacific is continuing its recovery from the Covid-19 pandemic, according to ADB’s Asian Development Outlook (ADO) 2022 Supplement, released today. Many countries are easing mobility restrictions, which is strengthening economic activity. However, growth has slowed in the PRC, the region’s largest economy, due to disruption from new Covid-19 lockdowns, as well as weaker global demand.
Inflation in developing Asia and the Pacific is predicted to accelerate to 4.2 percent this year, compared with a previous forecast of 3.7 percent. However, inflation pressure in the region as a whole is still lower than elsewhere in the world.
For 2023, ADB lowered its economic growth projection for the region to 5.2 percent from 5.3 percent, while raising the inflation forecast to 3.5 percent from 3.1 percent.
Growth forecasts for some subregions were upgraded. The outlook for Southeast Asia was raised to 5 percent this year from 4.9 percent amid increased domestic demand due to more relaxed Covid-19 restrictions.
The forecast for the Caucasus and Central Asia was raised to 3.8 percent from 3.6 percent, as some economies in the subregion have withstood the economic fallout from Russia’s invasion of Ukraine better than expected. In the Pacific, rebounding tourism in Fiji helped the subregion’s growth outlook improve to 4.7 percent from 3.9 percent.