ADB slashes Philippines’ growth outlook for 2023 to 5.7%

The Asian Development Bank (ADB) has downgraded its growth projection for the Philippines this year amid high inflation and external headwinds.

In the September editions of its flagship publication, Asian Development Outlook (ADO), the Manila-based multilateral lender said the country’s gross domestic product (GDP) growth is projected to grow 5.7% in 2023.

This is lower than the 6% growth rate the ADB projected in the July 2023 edition of ADO.

The lender’s latest forecast falls below the Marcos administration’s GDP growth projection of 6% to 7% for the year.

“Philippine economic growth is expected to moderate this year due to inflation and global headwinds before picking up in 2024 as price pressures ease,“ the ADB said.

The revised downward outlook also came after the country’s economy, as measured by GDP or total value of goods and services produced in a period, grew by 4.3% in the second quarter of 2023 — its slowest pace in nine quarters since the country entered the positive territory in the middle of 2021 following a pandemic-induced recession.

This is a slower rate than the 6.4% growth rate seen in the first quarter of the year and far slower than the 7.5% GDP growth seen in the same quarter last year.

High inflation and elevated interest rates were pointed as the main culprits for the economic growth slowdown during the April to June period.

“The Philippines’ growth story remains strong despite an expected moderation in 2023. Public investment and private spending fueled by 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 further stimulate consumption, boost jobs, and spur more investment,” Ramachandran added. 

For 2024, the Philippines’ GDP growth is maintained at 6.2% as household consumption and public spending on infrastructure and social services are seen contributing to the economy’s expansion.

ADB said the downside risks to the outlook are likely to come from global headwinds such as geopolitical tensions and a sharper-than-expected slowdown in major advanced economies.

It noted that the government met its target spending on infrastructure of 5.3% 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 said it is helping finance some of these 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.

Moreover, the multilateral lender said strong growth in services output of 7.2% in the first half of 2023 was on top of an 8.8% expansion a year earlier, with the sector contributing 80% of GDP growth in the period.

The ADB said the country recorded 3.6 million foreign 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.

The ABD added that its forecasts for inflation are maintained at an average of 6.2% in 2023 and 4.0% in 2024.

However, it said that possible severe weather disturbances including the El Niño dry weather phenomenon, pressures from elevated global commodity prices, and second round effects from higher transport fares and minimum wage hikes could slow the pace of inflation easing.

Inflation broke its six-month downtrend in August as it accelerated at 5.3% from 4.7% in July amid higher rice and vegetables prices and elevated transport costs. —KBK, GMA Integrated News