World Bank cuts Philippines 2023 growth forecast to 5.6 percent

Philippine Tribune
Philippine Tribune

Louella Desiderio – The Philippine Star

October 3, 2023 | 12:00am

The East Asia and Pacific October 2023 Economic Update report released by the World Bank yesterday showed the multilateral lender now expects the Philippines to post 5.6 percent growth for this year.

Philstar.com / Irra Lising

MANILA, Philippines — The World Bank has downgraded its growth forecast for the Philippines for this year amid high inflation and weak global economic conditions.

The East Asia and Pacific October 2023 Economic Update report released by the World Bank yesterday showed the multilateral lender now expects the Philippines to post 5.6 percent growth for this year.

This forecast is lower than the six percent gross domestic product (GDP) growth forecast for the Philippines for this year that the World Bank provided in June.

It is also below the six to seven percent economic growth target set by the government for this year.

“GDP growth in the Philippines is projected to moderate to 5.6 percent in 2023 from 7.6 percent in 2022 due to still elevated inflation, tight financial conditions and a weak external environment,” Ergys Islamaj, senior economist for East Asia and Pacific at the World Bank said during an online briefing yesterday.

The Philippine economy expanded by 4.3 percent in the second quarter, slower than the previous quarter’s 6.4 percent growth and the 7.5 percent expansion in the second quarter last year.

This brought average growth in the first semester to 5.3 percent.

For next year and 2025, the World Bank expects Philippine annual GDP growth to be at 5.8 percent.

In terms of the inflation outlook, the World Bank expects inflation in the country to average 5.9 percent this year, slightly higher than the 5.7 percent projection it provided in June.

The World Bank expects inflation in the country to ease to 3.6 percent next year, and to three percent in 2025.

The country’s headline inflation rate accelerated to 5.3 percent in August, reversing a six-month downtrend, due largely to faster increases in food costs.This brought average inflation for the January to August period to 6.6 percent.

The World Bank also expects the poverty incidence, measured using the poverty line for lower-middle income countries of $3.65 per day, to decline to 13.7 percent this year and further to 10.7 percent in 2025 from 17.8 percent in 2021.

World Bank East Asia and Pacific chief economist Aaditya Mattoo said the main concern for countries in the region is slowing global growth.

“Philippines, like all the countries in the region, depends on the rest of the world for exports of both goods and especially services. And also a lot of Filipinos work abroad and send their remittances back. All these factors are tied to the state of the global economy,” he said.

He said Philippine economic activity is expected to be supported by domestic demand, to be led by private consumption.

In addition, he said recent reforms implemented by the country including the amended Public Service Act (PSA), which is likely to make it easier for investments to flow to telecommunications and transport, are expected to provide an additional boost to growth.

“The PSA reform is estimated to increase total factor productivity by 3.2 percent on average, as it boosts competition in key enabling sectors and facilitates technology spillovers,” the World Bank said in the report.

If the PSA reform would be fully implemented, the metals and electronics sectors, which have the highest shares of transport and telecom in their input mix, are expected to experience double the productivity boost than the average sector at 6.4 percent.

The World Bank said its outlook for the Philippines is subject to significant external risks such as persistently high global inflation and lingering geopolitical uncertainty that could lead to a prolonged period of high global policy rates.

It said weaker-than-anticipated recovery in China could also further dampen trade.

Among the domestic risks seen are the El Niño weather phenomenon and additional shocks from natural disasters that could affect inflation and weaken domestic demand.

“Finally, delays in the execution of the government’s catch-up spending program could have adverse effects on short- term growth prospects,” the World Bank said.

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