HIGH inflation, tight monetary policy and global headwinds are expected to slow the country’s economic performance this year and next year, according to the latest report of the Asian Development Bank (ADB).
The Manila-based multilateral development bank forecasts GDP growth to slow to 6 percent this year before growing to 6.2 percent next year. The country’s growth last year was 7.6 percent while the government’s GDP growth target is 6 percent this year.
However, the country’s inflation rate this year is expected to outpace GDP growth. Inflation is forecast to average 6.2 percent in 2023 before slowing to 4 percent in 2024.
“GDP growth already accounts for inflation. The 6 percent we’re talking about is real GDP that’s been adjusted for inflation. So it’s really telling you that nominal GDP obviously is outstripping inflation, so as long as real GDP is growing, it’s 5 to 6 percent, then that’s going to improve the
well-being of Filipinos and economic growth is the most important here,” ADB Philippine Country Office Head Kelly S. Bird told reporters in a briefing on Tuesday.
Based on the Asian Development Outlook, the Philippines, Singapore, Lao PDR, Timor Leste, and Myanmar will see inflation outpace GDP growth this year. Lao PDR and Myanmar, however, will see inflation outpace growth until next year.
Lao PDR is expected to see a growth of 4 percent this year and next year but its inflation will be in double-digit at 16 percent this year and 5 percent next year.
Myanmar, which is expected to post a growth of 2.8 percent this year and 3.2 percent next year, and to register an inflation of 10.5 percent in 2023 and 8.2 percent in 2024.
The high inflation being experienced by the Philippines and these countries, Bird said, were also brought by the supply chain issues that continued even as countries are recovering from the pandemic.
“I think that’s what you want to look at. GDP growth is 6 percent, then that means per capita incomes in real terms are growing at at least 4 percent if you take into account population growth,” Bird said.
“If you think about it, if GDP continues to grow at 6 percent for 10 years, the economy would be at least 60 percent larger in real terms. Per capita incomes would be at least 40 percent larger. So it’s critically important to continue to achieve growth above 6 percent per annum,” he explained.
In the Philippines, another factor that complicates inflation is that the country has yet to attain food security. Bird said food security means “having reliable access to sufficient quantity of affordable and nutritious food.”
In order to achieve food security, Bird said, the Philippines must remove structural impediments to agriculture productivity, water management, and rural connectivity and remove restrictions to domestic and international trade in farm products.
Bird also said there is a need to improve collaboration between the government, research institutions and the private sector in terms of research and development and skills training as well as extension services to farmers.
Efforts to promote an efficient retail sector as well as undertaking nutrition programs targeting vulnerable persons such as pregnant teenagers, young mothers, and children under 5 years old.
Bird said ADB is already in discussions with the Department of Social Welfare and Development (DSWD) and the World Food Program to create a targeted program of extending food vouchers to poor communities.
Oil prices, banking crisis
In a separate briefing, ADB Chief Economist Albert Park said they were surprised by the decision of the Organization of the Petroleum Exporting Countries (OPEC) Plus to reduce production starting in May until the end of 2023.
Park said oil prices have been trading below $80 per barrel. The decision of the OPEC+ will see oil prices trade at $85 per barrel.
This year, Park said, oil prices are expected to average at $88 per barrel before increasing to around $90 per barrel. The decision of the OPEC+, he said, is not going to cause “fundamental changes” to their expectations.
However, ADB Macroeconomic Research Division Director Abdul Abiad said the Manila-based multilateral development bank will closely monitor the developments.
Abiad said oil prices could remain elevated due to the reduction in production, especially when coupled with the recovery of China.
He said the increase in China’s demand for oil and the reduction of production will place an “upward pressure on global energy prices and on inflation.”
“Of course, we have to keep an eye out on how things unfold going forward. We anticipated that supply would remain somewhat constrained this year,” Park said.
Meanwhile, the banking turmoil that has affected two banks in the United States and one in Europe is not expected to have a significant impact on Asian banks, according to the ADB.
However, Park said, a worst case scenario would be if this would lead to a crisis that would be half as large as the Global Financial Crisis (GFC) in 2008-2009.
Park said such a crisis would see the growth of developing Asia slow to at least 0.25 percent this year and next year. The slowdown will be mainly due to the slowdown in China.
China’s growth, meanwhile, will see a reduction of 0.4 percent this year and 0.6 percent next year. Park said the export demand shock that would ensue will affect Chinese exporters.
“We don’t really anticipate at this point the banking crisis to escalate the impact in the Asian banking system,” Park said.
On Tuesday, local economists said the threat of recession could mitigate the impact of high oil prices due to output cuts on Philippine inflation.
Oil-producing countries such as Saudi Arabia and Iraq announced that they will cut oil production by a total of 1 million barrels per day starting in May 2023 until the end of the year.
Saudi Arabia alone is expected to account for the reduction of 500,000 barrels a day during the period. Reports said this accounts for less than 5 percent of the country’s average production per day as of 2022.
“It will likely increase oil and commodity prices in the future, but I don’t think the worries over a global recession will subside soon so that oil and commodity price increases may not be sustained,” University of Asia and the Pacific (UA&P) economist Peter Lee U told the BusinessMirror on Monday.
Ateneo de Manila University Department of Economics Chairperson Alvin P. Ang agreed and said that in the short term, especially if the 6-percent increase in oil prices is sustained, this could feed into inflation.
However, Ang said actual demand is slowing. He added that countries like the United States still have “strategic reserves” that could cushion the impact on global pump prices.
Nonetheless, certain economists such as University of the Philippines Diliman School of Economics head of research Renato E. Reside Jr. believe there will be an impact on the country’s inflation rate and growth prospects.