The World Bank maintained its Philippine gross domestic product (GDP) growth outlook for this year and 2024.
In its latest Philippine Economic Update, the multilateral lender said it expects GDP to expand by 5.6% this year and by 5.8% next year, unchanged from its projections last October.
The World Bank’s forecasts are below the government’s 6-7% and 6.5-8% growth targets for this year and 2024, respectively.
“We haven’t changed our projections (from) October. The reason is we haven’t seen many shocks or policy surprises, which is by itself, good news,” World Bank Philippines Senior Economist Ralph van Doorn said at a media briefing on Tuesday.
The Philippine economy grew by 5.9% in the third quarter, bringing the nine-month average GDP growth at 5.5%.
The World Bank said an improvement in domestic demand is expected to fuel a “modest increase” in GDP growth to an average of 5.8% in 2024 to 2025.
“Services are expected to drive growth due to the ongoing recovery of the tourism sector and the consistent performance of the IT-BPO industry, which is likely to spur job creation, increase household incomes, and benefit consumption and tourism-adjacent industries,” it added.
On the demand side, the World Bank said that household spending will remain the main growth driver amid a strong labor market, steady remittances, and easing inflation.
Meanwhile, investments are expected to slow this year before picking up next year until 2025 thanks to recent investment reforms and the Philippine government’s “commitment to public investment despite ongoing fiscal consolidation.”
World Bank Country Director for the Philippines Ndiame Diop said that the Philippines continues to outperform many of its peers in the region in terms of growth.
“Despite the challenging global environment that resulted in a slowdown for many countries in the region, the Philippines stands out as among the top performers. This achievement can be attributed to the country’s resilience, resilient domestic demand, which helps mitigate the impact of external headwinds,” he said.
“We anticipate that the Philippine economy will continue to exhibit strong performance in the next few years. This growth will be propelled by a healthy labor market and declining inflation, which will stimulate robust household consumption,” Mr. Diop added.
However, Mr. Van Doorn said that risks are tilted to the downside and could dampen growth, citing external factors such as geopolitical tensions, trade restrictions on agricultural products, and persistent inflation.
On the domestic front, El Niño and other climate risks could also threaten food supply, he added.
To sustain growth in the long term, the World Bank said the Philippines should focus on structural reforms to boost productivity and improve its competitiveness.
“In the medium term, it’s important to implement investment reforms, implement fiscal consolidation, invest in human capital, strengthen water security and sanitation which are key to safeguard growth, reduce poverty, and increase the country’s growth potential,” Mr. Van Doorn said.
Meanwhile, the World Bank kept inflation forecasts unchanged at 5.9% for this year and 3.6% next year.
“While headline inflation is expected to remain elevated in 2023, it is projected to decline to within the target range in 2024,” the bank said.
“Following a year and a half of tight monetary policy, the return of headline inflation to within the target range in the first quarter of 2024 is expected to keep the policy rate steady in the short term,” it added.
Headline inflation eased further to 4.1% in November, slower than 4.9% in October and 8% in the same month in 2022.
November marked the 20th straight month that inflation was above the central bank’s 2-4% target range.
“Concerns over a possible resurgence of high inflation and tight monetary policies in advanced economies will continue to weigh on the Bangko Sentral ng Pilipinas’ (BSP) decision to reduce interest rates,” the World Bank added.
The BSP kept its key policy rate at 6.5% at its latest meeting, the highest in 16 years. Since May 2022, the central bank has raised borrowing costs by a total of 450 basis points.
The BSP’s next policy meeting is on Dec. 14. — Luisa Maria Jacinta C. Jocson