THE Philippine economy is expected to post slower growth in 2024, prompting the World Bank to cut its economic forecast for the country next year.
Based on the latest East Asia and the Pacific (EAP) Economic Update for October, the Philippine economy is expected to grow by 5.8 percent next year from the initial estimate of 5.9 percent in April.
The GDP growth estimate for this year was maintained at 5.6 percent. The consumption slowdown in China, one of the country’s biggest trade partners, is expected to negatively affect the economy next year.
“Overall, growth in developing EAP excluding China would be reduced by 0.1 percentage points in 2024. The heterogeneous impact across EAP countries reflects differences in their exposure to developments in China,” the report stated.
Apart from what the World Bank termed “domestic difficulties” in China, other risks could dampen growth in 2024.
The World Bank said this includes intensifying geopolitical tensions and the possibility of natural disasters.
These disasters, the Washington-based lender said, include extreme weather events, which are considered additional downside risks to the region’s economic outlook.
“The East Asia and Pacific region remains one of the fastest growing and most dynamic regions in the world, even if growth is moderating,” said World Bank East Asia and Pacific Vice-President Manuela V. Ferro.
“Over the medium term, sustaining high growth will require reforms to maintain industrial competitiveness, diversify trading partners, and unleash the productivity-enhancing and job-creating potential of the services sector,” she added.
Growth in developing East Asia and the Pacific (EAP) is projected to average 5 percent in 2023 but will ease in the second half of 2023. This forecast is lower than the 5.1 percent the World Bank projected in April.
For 2024, the World Bank said the region is forecast to post a growth of 4.5 percent. This is also lower than the 4.8 percent average estimated in April 2023.
Growth in the region is expected to be slower after almost 3,000 new restrictions were imposed on global trade in 2022, three times as large as those in 2019.
“The external environment remains challenging for EAP countries. Global growth is projected to fall to 2.1 percent in 2023, from 3.1 percent last year,” the report stated.
“Even though inflation is declining in major economies, core inflation in the US and EU remains elevated and labor markets remain tight, leading to continued high-interest rates,” it added.
Meanwhile, the World Bank said the services sectors could play an increasing role in driving development in a region known for manufacturing-led growth, a Special Focus section of the report says.
Services sectors have become key contributors to aggregate labor productivity growth over the last decade. Services exports have grown faster than goods exports.
The Washington-based lender said the growth of foreign direct investment in services has exceeded that in manufacturing by a factor of five in China, Indonesia, Malaysia, the Philippines, and Thailand.
The diffusion of digital technologies and services reforms are improving economic performance. In the Philippines, the adoption of software and data analytics by firms increased the productivity of firms by 1.5 percent on average over the period 2010-2019.
“Services reform and digitalization can generate a virtuous cycle of increasing economic opportunity and enhanced human capacity, powering regional development,” said World Bank East Asia and Pacific Chief Economist Aaditya Mattoo.
In Vietnam, reducing policy barriers such as restrictions on foreign entry and ownership in transport, finance, and business services led to a 2.9-percent annualized increase in value-added per worker in these sectors over the 2008-2016 period.
The elimination of barriers also led to a 3.1-percent increase in labor productivity in the manufacturing enterprises that use these services, benefiting small and medium private enterprises most significantly.
The combination of services reform and digitalization is not only creating new opportunities but also enhancing the capacity of people to take advantage of these opportunities.
For example, distance education and telemedicine supported by well-selected, trained, and motivated local staff have led to better learning and health outcomes in the region, though there remains significant inequality in access.