The World Bank reduced the 2019 growth forecast for the Philippines to 6.4 percent from the previous estimate of 6.5 percent, taking into account the impact of the delay in the national budget approval, the slowdown in global trade and the El Niño dry spell.
It also revised downward the 2020 growth projection for the Philippines to 6.5 percent from 6.6 percent.
The multilateral lender, however, said the Philippine economy would continue to be resilient amid the domestic and external headwinds. For 2021, the economy is seen to grow 6.5 percent. These projections were contained in the latest Philippines Economic Update released Monday.
“The country’s growth outlook remains positive,” World Bank country director for Brunei, Malaysia, the Philippines, and Thailand Mara Warwick said.
“Higher private consumption due to lower inflation, steady growth of remittances and election spending will fuel growth this year,” she said.
Warwick said the growth in public investment would be tempered in the first half of 2019 but was expected to recover in the second half of the year.
The growth of the Philippine economy was driven by consumption, with households contributing more than two-thirds of aggregate expenditures.
Annual private consumption growth declined from 5.9 percent in 2017 to 5.6 percent in 2018 on the back of high inflation. However, it is expected to rebound to 5.9 percent in 2019 and 6.0 percent in 2020 amid declining inflation and the continued job generation in the economy.
Inflation peaked at a nine-year high of 6.7 percent in October 2018 but eased to 6 percent in November and 5.1 percent in December, bringing the full-year average to 5.2 percent, above the target range of 2 percent to 4 percent.
Inflation further slowed to 4.4 percent in January and 3.8 percent in February 2019.
The World Bank said remittances were expected to remain steady as the new employment opportunities for Filipinos became available in countries like Japan, Germany, and Poland, further fueling consumption.
The bank flagged several risks that could affect the Philippines’ overall growth prospects, among them the delay in the approval of the 2019 budget and a looming drought.
It said that under a reenacted budget, the government could not implement new programs and projects, thus affecting public investment. The El Niño phenomenon that is expected to cause several months of dry spell might reduce farm output and raise food prices.
The report highlighted the risks posed by external factors, including the potential escalation of trade tensions between the US and China and weak demand for the country’s exports.
It also mentioned potential challenges stemming from a strengthening US dollar and the hikes in US interest rates that could raise borrowing costs for the country’s infrastructure projects.
“In the short term, key priorities for sustaining the Philippines’ rapid and more inclusive growth include prudently managing fiscal and current account balances and preserving consumer and business confidence,” World Bank senior economist Rong Qian said.
“As government ramps up spending to implement its inclusive growth agenda, it would need complementary reforms to increase revenue and ensure that the country’s finances are sound and sustainable,” Qian said.
The report said the country needed to focus on raising investments in human capital (people’s health, nutrition, education and skills) to speed up inclusive growth or growth that benefits the poor and most vulnerable.
“The Philippines needs to address the high rates of malnutrition among children, improve learning, and the quality of healthcare, to unleash the full productive potential of Filipinos,” Gabriel Demombynes, program leader for human development for Brunei, Malaysia, the Philippines and Thailand said.
“The country needs to focus on these challenges while undertaking reforms for improving the country’s capacity to create more high-paying jobs and speed up poverty reduction,” Demombynes said.
Citing available data, the World Bank said child malnutrition in the Philippines is high. One in three children under the age of five is stunted―the principal marker of malnutrition―and stunting rates were stagnant for more than a decade.
It said malnutrition is severe among children in poor households, unleashing a vicious cycle. Children who grow up in poor households are often inadequately nourished and thus more likely to suffer from limited cognitive development.