ADB cuts Philippine growth outlook to 6%

The Asian Development Bank (ADB) cut its growth forecast for the Philippines to 6% this year, as elevated food prices continue to stoke inflation.

In the latest Asian Development Outlook report released on Thursday, the ADB said it lowered its Philippine gross domestic product (GDP) growth projection to 6% for this year from the 6.2% forecast given in December. In 2023, the economy grew by a revised 5.5%.

For 2025, the ADB sees Philippine GDP expanding by 6.2%.

“Broad-based domestic demand will lift economic growth… Moderating inflation and monetary easing bode well for investment and household consumption. Government consumption will rebound as ongoing measures improve budget execution and tackle procurement delays,” the ADB said in the report.

The ADB’s latest projections are at the low end of the Philippine government’s revised 6-7% target for 2024, and below the 6.5-7.5% goal for 2025.

“[The] downgrade of the outlook is basically [due to] the upside risk to inflation, mainly how the extreme weather events affect agricultural production, the food prices, that can affect the inflation in the Philippines,” ADB Philippines Principal Country Specialist Cristina Lozano said at a media briefing.

Soaring rice prices in global markets will continue to impact domestic rice prices in countries like the Philippines, the ADB said.

“Reduced tariffs on some food items including rice, corn and pork were extended to the end of 2024 to help contain food inflation, and this should help mitigate some of the inflationary pressures that we’re already seeing due to the El Niño phenomenon,” ADB’s Philippines Country Director Pavit Ramachandran told the briefing.

He said inflation will temporarily accelerate above the 2-4.5% target range in the second quarter but return to the target by the second semester.

The ADB lowered its inflation forecast for the Philippines to 3.8% in 2024 from 4% previously. Inflation is projected to further ease to 3.4% in 2025.

The Bangko Sentral ng Pilipinas (BSP) sees inflation averaging 3.8% this year and 3.2% next year.

The ADB said the BSP may cut policy rates in the second half of the year should inflation remain within the 2-4% target range.

The BSP on Monday kept its key policy rate steady at 6.5% for a fourth straight meeting.

At the same time, Ms. Lozano said slower growth in advanced economies like the United States and Japan, and higher shipping costs due to attacks by Yemen’s Houthi rebels in the Red Sea may also weigh on the Philippines growth prospects.

Rising shipping costs due to the Red Sea conflict could raise inflation by 0.4 percentage point, Abdul Abiad, director of the ADB’s Macroeconomics Research Division, said.

FASTEST IN SOUTHEAST ASIA
Despite the lowered forecast, the ADB still expects the Philippines to be the fastest-growing economy in Southeast Asia along with Vietnam.

The 6% growth projection for the Philippines is faster than the 4.6% and 4.7% growth forecast for Southeast Asia in 2024 and 2025, respectively.

In the Philippines, more private sector participation and investment will serve as “key engines” for growth in the near to medium term, Mr. Ramachandran said.

“I think it’s not the lack of laws or regulations… I think implementation can be improved,” he said.

Ms. Lozano said that opening up key sectors like railways, telecommunications, energy to foreign investors would enhance the country’s growth. These industries have been opened up to full foreign ownership under Republic Act No. 11647 or the Public Service Act.

“One of the major reasons why investors are a bit reluctant in investing in the Philippines is the infrastructure deficit [and] infrastructure gap, so that is quite important to address,” she said.

Fixed investments in the Philippines, which stood at over 20% of GDP since 2013, remains far behind the 30% of GDP investments of its neighbors like Vietnam and Indonesia, the ADB said.

Meanwhile, the ADB raised its growth forecast for developing Asia to 4.9% this year from 4.8% in December. This is slightly slower than the region’s 5% GDP expansion in 2023. The ADB sees developing Asia growing by 4.9% in 2025.

“Growth in developing Asia will remain robust this year, in spite of uncertainty in the external environment. The end of interest rate hiking cycles in most economies as well as continued recovery in goods exports from an upturn in the semiconductor cycle will support growth,” ADB Chief Economist Albert F. Park said in the report.

Stronger growth in Southeast Asia and South Asia is expected to offset the slowdown in other parts of the region this year.

The ADB warned of several downside risks to the outlook.

“Escalating conflict and geopolitical tensions could disrupt supply chains and amplify commodity price volatility. Risks related to the path of United States monetary policy, property market stress in the People’s Republic of China, and the effects of adverse weather-related events are other pressure points for the region,” Mr. Park said.

The ADB said a “worse-than-expected” slowdown in China’s property market could dampen the region’s growth.

Developing Asia’s GDP excluding China is projected to be a tad higher at 5%, with China’s GDP projected at 4.8% and 4.5% in 2024 and 2025, respectively. — Beatriz Marie D. Cruz