WHILE the World Bank revised upwards its growth outlook for the Philippines for 2023 from 5.4 percent to 6 percent on the back of strong domestic demand, among others, it warned the country of certain risks to the economic outlook such as the threat of El Niño which it said could further constrain food production.
The report “Global Economic Prospects: June 2023,” released by the WB on Wednesday, said, “Following a sharp slowdown in 2022, growth in the East Asia and Pacific (EAP) region is recovering, supported by strong activity in China following the reopening of its economy and a rapid decline in Covid-19 infections.”
In fact, WB said, compared with January projections, growth in EAP is expected to be 1.2 percentage points higher in 2023 and 0.3 percentage points lower in 2024.
For the Philippines, WB revised upward its growth outlook by 0.6 percentage points from the 5.4 percent in January 2023 to 6 percent, as shown in the Global Economic Prospects report.
Meanwhile, the multilateral financial institution expects the Philippine economy to post 5.9-percent growth in 2024, with such growth resting on “strong domestic demand,” among others.
“Strong domestic demand is underpinned by consumer spending drawing strength from the continuing jobs recovery and the steady flow of remittances. Fixed capital investment will also contribute to growth, anchored on upbeat domestic activity, and improved business confidence,” the multilateral agency said in a statement on Wednesday.
Moreover, it said the services sector will continue to support growth, buoyed by “spillovers” from China’s reopening.
The recovery of international tourism, it added, will help boost growth of transportation services, accommodation, and food services, as well as wholesale and retail trade services.
WB also recognized the country’s Information Technology and Business Process Management (IT-BPM) industry, saying this will “also continue to bolster the services sector as foreign companies outsource their business operations to the Philippines to reduce costs.”
In contrast, WB noted “persistent” global and domestic risks that can “hinder” recovery and poverty reduction.
“It is essential to sustain improvements in social protection to help families, especially the poor and vulnerable, cope with economic difficulties as the country navigates the global slowdown, budget constraints, high prices of basic commodities, and climate-related risks,” Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, Philippines, and Thailand said.
Meanwhile, WB said global risks to the country’s economic outlook include the possibility of rising global inflation, higher global interest rates, and an escalation of geopolitical tensions from Russia’s invasion of Ukraine which could further cause a sharper-than-expected global slowdown, thus hampering Philippine exports.
Within the Philippines, the WB said, high inflation remains a risk to the economic outlook due to several factors including natural disasters affecting food supply, the threat of El Niño that could further constrain food production, logistics and supply chain challenges, and pressure from domestic demand.
The Bank explained further that high inflation “erodes” the purchasing power of poor families, making it more difficult for them to afford necessities.
To help address inflation, Ralph Van Doorn, World Bank Senior Economist, said doing so would require implementing measures such as reducing tariff and non-tariff barriers, enhancing domestic supplies, and bolstering agriculture with extension services, seeds, and fertilizers.
“In the face of escalating prices, a comprehensive strategy is needed to guarantee sufficient food for everyone. This entails a more productive agriculture and food system that is resilient to climate risks, serves all consumers, and competes effectively in both the local and global markets,” Van Doorn added.
On Tuesday, the Philippine Statistics Authority (PSA) announced that the country’s headline inflation slowed to 6.1 percent in May 2023, the fourth consecutive decline for the year.
Socioeconomic Planning Secretary Arsenio M. Balisacan said, “As the risks to the inflation outlook lean towards the upside due to potential increases in transport fares, wage adjustments, higher electricity rates, and domestic prices of key food items resulting from the impact of El Niño, the government is working to implement the necessary interventions as we aim to keep prices low and stable for Filipino consumers.”
Meanwhile, the Bangko Sentral ng Pilipinas (BSP) said in a statement on Tuesday that it “stands ready” to adjust its monetary policy stance to prevent further “broadening of price pressures.”