The World Bank on Wednesday raises its 2023 growth projection for the Philippines to 6.0 percent from 5.6 percent on robust consumer spending amid the improving labor market conditions and sustained inflows of remittances from Filipinos working overseas.
Its updated forecast was contained in the Philippine Economic Update for June 2023 and represented the low end of the government’s target range of 6 percent to 7 percent for the whole year. It was also a reversal of the bank’s move in April when it cut the forecast to 5.6 percent from 5.8 percent made in October 2022.
“Bucking global trends, strong domestic demand in the Philippines is expected to propel its economy to a 6.0 percent growth in 2023 and 5.9 percent the following year. Strong domestic demand is underpinned by consumer spending drawing strength from the continuing jobs recovery and the steady flow of remittances,” the bank said in the report.
The World Bank said fixed capital investment would contribute to growth, anchored on upbeat domestic activity and improved business confidence.
It said the services sector would continue to support growth, buoyed by spillovers from China’s reopening. The recovery of international tourism will also contribute to boost growth of transportation services, accommodation, food services and wholesale and retail trade services.
The information technology-business process outsourcing industries will continue to bolster the services sector, as foreign companies outsource their business operations to the Philippines to reduce costs, it said.
The Philippines economy expanded by 7.6 percent in 2022, faster than 5.7 percent growth in 2021 on reinvigorated economic activities as the government continued to relax mobility restrictions. Data showed that in the first quarter this year, the economy grew by 6.4 percent.
The World Bank said the implementation of recently passed reforms – such as the amendments to the Public Service Act, Foreign Investment Act and Retail Trade Liberalization law which allow greater foreign participation in the economy—would encourage private investment and strengthen growth in the country over the medium term.
Ndiame Diop, World Bank country director for Brunei, Malaysia, the Philippines and Thailand, said there remained persistent global and domestic risks that could hinder recovery and poverty reduction.
“It is essential to sustain improvements in social protection to help families, especially the poor and vulnerable, cope with economic difficulties as the country navigates the global slowdown, budget constraints, high prices of basic commodities, and climate-related risks,” said Diop.
The WB report said ensuring an efficient delivery of social protection programs would require speeding up current government reforms, including adoption of the national ID system for social protection delivery, updating the targeting system for identifying poor and vulnerable families, innovations in digital payment systems and strengthening financing mechanisms and readiness for disaster response.
Global risks to the economic outlook include the possibility of rising global inflation, higher global interest rates and an escalation of geopolitical tensions brought about by Russia’s invasion of Ukraine which could further cause a sharper-than-expected global slowdown, thus hampering Philippine exports, it said.
High inflation remains a risk to the economic outlook due to several factors including natural disasters affecting food supply, the threat of El Niño that could further constrain food production, logistics and supply chain challenges and pressure from domestic demand. High inflation erodes the purchasing power of poor families, making it more difficult for them to afford necessities.
World Bank senior economist Ralph Van Doorn said addressing inflation requires implementing measures such as reducing tariff and non-tariff barriers, enhancing domestic supplies, and bolstering agriculture with extension services, seeds and fertilizers.
“In the face of escalating prices, a comprehensive strategy is needed to guarantee sufficient food for everyone. This entails a more productive agriculture and food system that is resilient to climate risks, serves all consumers, and competes effectively on both local and global markets,” Van Doorn said.
The bank said sustained investments in climate change initiatives, particularly in the agriculture sector, would be also beneficial. This could include measures such as extending water-saving drip irrigation systems to rain-fed areas, bolstering the resilience and productivity of agricultural lands, and enhancing water storage capacity for a consistent supply during prolonged dry periods.
Over the long-term, the bank advocates for a transition towards cleaner energy to further the country’s climate change mitigation efforts. A shift towards clean energy would not only decrease dependence on imported fossil fuels, but also enhance energy security through increased use of indigenous and renewable energy sources.