The interagency Development Budget Coordinating Committee may lower its growth projections this year, taking into account the Israel-Hamas conflict that may affect world oil prices, an economist said over the weekend.
“Local GDP [gross domestic product] growth could be slightly revised lower, as seen by the adjustments by World Bank, IMF [International Monetary Fund], ADB [Asian Development Bank], other multilateral institutions and other credit rating agencies, even before the Israel-Hamas conflict,” Rizal Commercial Banking Corp. chief economist Michael Ricafort said.
Ricafort said a scenario where “world oil prices become volatile and adding to inflation that drags economic growth and increases interest rates” would be major factors that the DBCC could not ignore.
The DBCC is composed of the heads of the Department of Finance, Department of Budget and Management and the National Economic and Development Authority.
The Israeli-Hamas war started on Oct. 7, 2023, with a barrage of at least 3,000 rockets launched from the Gaza Strip against Israel. About 2,500 Palestinian militants breached the Gaza–Israel barrier, attacking military bases and massacring civilians in neighboring Israeli communities.
Israel responded by pounding Gaza with rockets, and latest reports said it gave an ultimatum to Gazans to evacuate for a massive ground offensive to finish off the Hamas militants.
Ricafort said the main risk is dragging other countries in the proxy war, especially other Middle Eastern countries that are major oil producers such as Iran.
“If and when this happens, global crude oil prices could go up and would lead to higher inflation and slower economic growth worldwide, including the Philippines, especially if there would be repatriated OFWs in Israel,” Ricafort said.
Ricafort said any adverse economic impact would be felt from the fourth quarter this year.
The DBCC earlier projected a 6 percent to 7 percent growth for 2023. The elevated inflation, higher interest rates and underspending weighed on the economy which grew by 5.3 percent in the first half, below the target range.
Economic managers earlier said the GDP should grow by at least 6.6 percent in the second half to meet the low end of the target range.
They said a more robust spending would do the trick for the rest of the year. The IMF cut its growth forecast for the Philippines this year to 5.3 percent from the previous estimate of 6.2 percent.
The IMF’s latest forecast was also lower than the World Bank’s 5.6 percent projection, which was also a downward adjustment from the bank’s 6 percent estimate previously.
The IMF expects the economy to grow by 6 percent in 2024.