THE WORLD BANK expects the Philippines to be the fastest-growing economy in Southeast Asia this year, despite trimming its gross domestic product (GDP) growth projection due to persistent inflation and global headwinds.
In its East Asia and the Pacific Economic Update released on Monday, the World Bank cut its GDP growth forecast for the Philippines to 5.6%, from the 6% projection given in June. The latest forecast is the same as the GDP outlook it gave in April.
Aaditya Mattoo, World Bank Chief Economist for East Asia and the Pacific, said the global economic slowdown is a major concern for countries like the Philippines.
“The Philippines, like other countries in the region, depends on the rest of the world for exports (of) goods and especially services. A lot of Filipinos work abroad and send remittances back. All those factors are tied to the state of the global economy,” Mr. Mattoo said during a briefing on Monday.
World Bank Senior Economist for East Asia and the Pacific Ergys Islamaj said Philippine economic growth this year will moderate from the 7.6% GDP expansion in 2022 due to elevated inflation, tighter financial conditions, and a weak external environment.
“High inflation, tight fiscal and monetary policies, budget execution delays, and subdued global growth dampened the Philippines’ growth momentum,” the World Bank said.
The Philippine economy expanded by 4.3% in the second quarter, its slowest growth in over two years. For the first half, economic growth averaged 5.3%, below the government’s 6-7% target.
Despite the lower growth projection, the World Bank expects the Philippines to post the fastest expansion among Southeast Asian countries this year. At 5.6%, this is also above the 5% GDP growth average for East Asia and the Pacific.
Philippine growth will likely outpace Cambodia (5.5%), Indonesia (5%), Vietnam (4.7%), Malaysia (3.9%), Laos (3.7%), Thailand (3.4%), and Myanmar (3%).
At the same time, the World Bank trimmed its growth forecast for the Philippines to 5.8% for 2024 from 5.9% previously. This was below the government’s 6.5-8% target for next year.
If realized, the Philippines would be the second-fastest growing economy in Southeast Asia in 2024, behind only Cambodia’s 6.1%.
According to the World Bank, Philippine GDP growth is also projected to average 5.7% from 2023 through 2025.
“The good news for the Philippines, I should say, is that we expect economic activity to be supported by domestic demand, led by private consumption and declining inflation,” Mr. Mattoo said.
Recent economic reforms like the amended Public Service Act (PSA) would help ramp up investments, he added.
The amended PSA, which took effect in April, allows full foreign ownership in more public services such as telecommunications, airlines, and railways.
In its Macro Poverty Outlook analysis, the World Bank projects Philippine inflation to average 5.9% this year, before easing to 3.6% in 2024.
Both forecasts are a tad higher than the Bangko Sentral ng Pilipinas’ (BSP) 5.8% and 3.5% projections for 2023 and 2024, respectively.
“Inflation will increase marginally in 2023 due to the materialization of risks to food inflation, before returning to within the target range in 2024 amid improvements in food supply and lower global commodity prices,” the World Bank said.
The World Bank also sees inflation further easing to 3% by 2025, below the 3.4% estimate of the BSP.
“In the near term, essential factors for boosting growth include containing price pressures and improving budget utilization,” the World Bank added.
Meanwhile, the World Bank also urged economies to take advantage of opportunities in the services sector, which will be central to the region’s development.
“Services now account for at least about half of employment and value added in most East Asia and the Pacific economies,” Mr. Mattoo said.
In the Philippines, Mr. Mattoo said that service-oriented firms are more likely to use digital technologies if they are foreign-owned and especially if they have access to fiber broadband.
“The services firms that adopt these technologies have seen a big increase in productivity,” he added.
The World Bank recommended promoting reforms to pursue liberalization and regulation of services trade; address the infrastructure and skill gaps; and maximize cooperative international action. — Luisa Maria Jacinta C. Jocson