The World Bank on Tuesday upgraded its 2022 gross domestic product growth forecast for the Philippines to 7.2 percent from the 6.5-percent estimate it made in September on expected higher consumer demand amid the reopening of the economy.
The bank said, however, growth would likely taper off to an average of 5.7 percent in 2023 because of the elevated inflation and higher interest rates. This was contained in the latest Philippine Economic Update released to the media.
It said this year’s forecast rides on the momentum of a 7.7-percent growth in the first three quarters, buoyed by the removal of remaining restrictions on people’s mobility and business operations and the recovery of incomes and jobs.
The reopening has benefitted the services sector, and government spending on infrastructure fueled the growth of construction and industry, it said.
The growth forecast for 2023 was premised on reduced consumer demand, alongside high inflation and high interest rates that are expected to temper household spending and investments.
Ndiamé Diop, World Bank country director for Brunei, Malaysia, the Philippines and Thailand, said higher interest rates would likely constrain growth of private lending and investments at a time when public spending would likely slow as the country undertakes “fiscal consolidation” or implements measures to rein in government deficits and reduce debt.
Diop said as global growth was expected to decelerate next year, external demand from advanced economies, which are key buyers of Philippines merchandise exports, would be subdued.
He also said shocks from the COVID-19 pandemic had worsened child malnutrition and stunting and hampered student learning especially among the poor and most vulnerable families.
“If unmitigated, these shocks can have persistent impacts on people’s wellbeing and damage their future productivity, earnings and capacities for innovation. For this reason, sustained investments in agriculture, nutrition and education are imperative despite pressure for fiscal consolidation,” Diop said.
The report said the immediate domestic challenge that faces the country is high domestic inflation, averaging 5.4 percent in the last ten months, and reaching 7.7 percent in October and 8 percent in November.
Inflationary pressures came from multiple fronts including elevated global commodity and energy prices, disruptions in international supply chain and logistics, depreciation of the peso and domestic supply constraints due to low farm productivity and recent floods and typhoons.
The bank said over the medium term, addressing the weaknesses in the agriculture sector would strengthen food security in the country.
Growth prospects for the agriculture sector remain poor due to a combination of chronic underinvestment and intense vulnerability to weather-related shocks, it said.
Agriculture comprises less than 10 percent of the gross domestic product, and the sector’s contribution to growth was minimal over the past five years. However, it employs over 22 percent of the labor force, and domestic food production influences trends in inflation.
Increasing agricultural productivity, the PEU said, would be crucial to helping ensure food security and boosting more inclusive growth.
It said the efficient use of public funds for public investments would help address the structural constraints including value chain weaknesses and poor business climate for the agri-food system.