ADB sees moderate growth in the Philippines

Economic growth in the Philippines is expected to moderate this year due to inflation and global headwinds before picking up in 2024 as price pressures ease, according to a report released by the Asian Development Bank (ADB).

In its Asian Development Outlook (ADO) September 2023, the ADB forecasts the Philippine economy to grow by 5.7 percent this year, compared to the 6 percent projection in the April report. The 2024 gross domestic product (GDP) forecast is maintained at 6.2 percent, with household consumption and public spending on infrastructure and social services seen contributing to the economy’s expansion.

“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.”

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.

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. ADB is helping finance some of these major, transformative 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 approved last week.

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 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.

Forecasts for inflation are maintained at an average of 6.2% in 2023 and 4.0% in 2024, the report said. However, 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.

ADB said it is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

Meanwhile, economic growth in Asia and the Pacific is expected to remain solid, although risks to the outlook are rising.

The region’s developing economies are forecast to grow 4.7% this year, a slight downward revision from a previous projection of 4.8%, according to Asian Development Outlook (ADO) September 2023, released today. The growth forecast for next year is maintained at 4.8%.

Growth in the region was upbeat in the first half of this year, driven by healthy domestic demand and reopening in the People’s Republic of China (PRC), even as a weaker global outlook reduced export demand. Rebounding tourism, resilient service sectors, healthy money transfers into the region, and improving financial conditions are all helping support economic activity, and inflation is receding in most economies after peaking last year.

However, weakness in the PRC’s property sector is weighing on regional prospects. High global interest rates have increased the risk of financial instability. Sporadic supply disruptions from the continuing Russian invasion of Ukraine, export restrictions, and the increased risk of droughts and floods caused by El Niño could once again trigger rising food prices and challenge food security.

“Developing Asia continues growing robustly, and inflation pressures are receding,” said ADB Chief Economist Albert Park. “Some central banks in the region have started to lower interest rates, which will help boost growth. Still, governments need to be vigilant against the many risks that the region faces. Property market weakness in the PRC remains a concern. Extreme weather events due to climate change and the effects of El Niño remind us that economies must work together to build resilience and protect the most vulnerable.”