THE recent spike in inflation prompted the Asian Development Bank (ADB) to revise its growth forecast for the Philippines this year.
In its latest Asian Development Outlook (ADO) report, ADB said the Philippine GDP growth is expected to average 5.7 percent, three percentage points lower than its estimate in April.
Data from the Philippine Statistics Authority (PSA) showed inflation averaged 5.3 percent in August on the back of higher rice and vegetable prices. (Full story here: https://businessmirror.com.ph/2023/09/06/august-inflation-swells-to-5-3-on-price-spikes/)
“Domestic demand and public investment are expected to continue to support growth. As in ADO April 2023, inflationary pressures are projected to moderate next year and the current account deficit to narrow,” ADB’s report stated.
However, the Manila-based multilateral bank retained its April growth forecast for the country’s GDP growth at 6.2 percent in 2024. ADB also retained its inflation forecast at 6.2 percent in 2023 and 4 percent in 2024.
ADB said the downside risks to its outlook for the Philippine economy may come from global headwinds such as geopolitical tensions and a sharper-than-expected slowdown in major advanced economies.
Other risks, ADB said, include possible severe weather disturbances including the El Niño dry weather phenomenon, and pressures from higher global commodity prices.
ADB also said second-round effects from higher transport fares and minimum wage hikes could keep inflation high.
“The Philippines’ growth story remains strong despite an expected moderation in 2023. Public investment and private spending fueled by the low unemployment rate, sustained increase in remittances from Filipinos overseas, and buoyant services including tourism will support growth,” said ADB Philippines Country Director Pavit Ramachandran. “The government’s large infrastructure projects should stimulate consumption, boost jobs, and spur more investment.”
ADB noted that the government met its target spending on infrastructure of 5.3 percent of GDP in the first half of the year and is expected to maintain this level of investment with several big-ticket projects underway.
The bank is helping finance some of these major, transformative projects such as the Malolos-Clark Railway Project, South Commuter Railway Project, Improving Growth Corridors in Mindanao Road Sector Project, and Integrated Flood Resilience and Adaptation Project—Phase 1 approved last week.
Strong growth in services output of 7.2 percent in the first half of 2023 was on top of an 8.8-percent expansion a year earlier, with the sector contributing 80 percent of GDP growth in the period.
The country recorded 3.6 millionforeign visitor arrivals from January to August, surpassing 2.7 million visitors in all of 2022, government data show.
Higher tourism-related receipts, sustained remittances, and strong service exports, particularly from business process outsourcing, will help lift the current account and offset weak merchandise exports, the report said.
Meanwhile, ADB said the region’s developing economies are forecast to grow 4.7 percent this year, a slight downward revision from a previous projection of 4.8 percent. The growth forecast for next year is maintained at 4.8 percent.
ADB said among developing Asia’s subregions, Southeast Asia’s growth outlook is cut to 4.6 percent this year from an earlier projection of 4.7 percent, due to weaker export demand.
Inflation in developing Asia and the Pacific is expected to average 3.6 percent this year, down from an earlier projection of 4.2 percent. This is largely due to low inflation in China, along with steadying food and energy prices. The inflation forecast for next year is 3.5 percent.
Image credits: Aldar Darmaev | Dreamstime.com