By B.M.D.Cruz, April 2, 2024; Business World
The World Bank (WB) maintained its economic growth forecast for the Philippines this year but raised its 2025 growth projection, amid expectations of higher consumer spending and foreign investments.
In its latest East Asia and Pacific (EAP) Economic Update, the World Bank said it expects Philippine gross domestic product (GDP) to grow by 5.8% this year, the fastest in Southeast Asia along with Cambodia.
The Philippines and Cambodia are seen to expand faster than Vietnam (5.5%), Indonesia (4.9%), Malaysia (4.3%), Lao People’s Democratic Republic (4.0%), Timor-Leste (3.6%), Thailand (2.8%) and Myanmar (1.3%).
For 2025, the World Bank raised its GDP forecast for the Philippines to 5.9% from 5.8%.
However, the World Bank’s growth forecasts for the Philippines are lower than the government’s target of 6.5-7.5% for 2024 and 6.5-8% for 2025 to 2028.
“What has sustained growth in the Philippines, like much of the region, has been consumption and the recovery in services,” WB East Asia and Pacific Chief Economist Aaditya Mattoo said at a virtual briefing on Monday.
He noted foreign investment flows into the Philippines might increase after the government implemented significant reforms such as Republic Act No. 11659 or the Public Service Act, which allows full foreign ownership in key sectors such as telecommunications and airlines.
“(The reforms) should begin to pay off in terms of greater foreign investment, which though in the short run… the flows have been less strong than we would have expected,” Mr. Mattoo said.
Climate and geopolitical shocks, as well as elevated inflation and high interest rates are risks to the growth outlook.
“If there is a resurgence in inflation, for example in the United States, which might well see interest rates even higher for longer, that would certainly affect growth throughout the region as we have estimated,” he said.
The World Bank projects GDP growth for East Asia and the Pacific at 4.5% this year and 4.3% for 2025. This is slower than the region’s projected 5.1% expansion in 2023.
“Most economies in developing East Asia and Pacific, other than several Pacific island countries, are growing faster than the rest of the world, but slower than before the pandemic,” the World Bank said.
The region’s slower growth is partially due to China, whose economy is expected to slow to 4.5% this year and 4.3% next year.
“China is aiming to transition to a more balanced growth path but the quest to ignite alternative demand drivers is proving difficult,” the World Bank said.
Excluding China, the region’s GDP is projected to expand by 4.6% this year and 4.8% in 2025.
“The likely rebound in global goods trade and the gradual easing of global financial conditions are expected to offset the impact of China slowing down,” it said.
Poverty to Decline
Meanwhile, the World Bank expects Philippine GDP growth to average at 5.9% from 2024 to 2026, driven by strong domestic demand.
“The medium-term outlook will be driven by robust private consumption activity, supported by declining inflation, a healthy labor market and steady remittance inflows,” it said in its Macro Poverty Outlook for the Philippines.
It expects poverty in the Philippines to decline despite risks from extreme climate events.
“Poverty incidence using the World Bank’s poverty line for lower middle-income countries of $3.65/day, PPP (purchasing power parity) is projected to decrease from 17.8% in 2021 to 12.2% in 2024 and further decrease to 9.3% in 2026,” it said.
The World Bank said risks to this outlook include high inflation that would “dampen economic activity by keeping the policy rate higher for longer, erode purchasing power and threaten to deepen poverty and worsen economic vulnerability.”
“The possibility of higher-than-expected global inflation, still tight global financing conditions, a further slowdown in the growth of China and escalating geopolitical tensions could cause a sharper-than-expected growth slowdown which would further dampen external demand,” it added.
