THE Philippine economy’s performance, especially in the third quarter, “shattered” the expectations of the Asian Development Bank (ADB) prompting the Manila-based multilateral development bank to raise its forecast for the country’s GDP growth this year.
The ADB said growth this year is now projected to reach 7.4 percent from the bank’s September estimate of 6.5 percent. ADB Philippine Country Director Kelly Bird said this is the highest growth forecast in the region.
However, due to high inflation and the impact on the economy of the recession in advanced economies like the United States and the European Union, growth is expected to be more muted next year at 6 percent from the initial estimate of 6.3 percent.
“The Philippines’s economic performance this year has shattered all of our forecasts for 2022. That’s shattered, it broke, Generation Z would say ‘slayed’ our forecasts for 2022. As you know, in the three quarters it was around 7.7 percent year-on-year. Our forecast in 2022 is 7.4 percent,” Bird said on Wednesday.
In its ADB Outlook Supplement, the Manila-based multilateral development bank said growth in the three quarters of the year was driven by “robust private consumption and investment and by sustained public infrastructure spending.”
Bird also noted that the recovery of employment; increase in remittances; buoyant tourism, retail trade, services exports; and expansion of the manufacturing sector helped boost economic growth.
However, this may not be sustained due to high inflation. The ADB expects inflation to average 5.7 percent this year, higher than its September forecast of 5.3 percent. The increase in the prices of commodities is expected to slow but remain above target at 4.3 percent in 2023. This is the same rate ADB projected in September.
“Core inflation is a rough measure of inflation expectations. The core inflation rates have been going up and that means inflation expectations are rising. That raises a concern that inflation starts to become sticky, that is, it’s hard to reduce. The [Bangko Sentral ng Pilipinas] is fully aware of that and just to let you know, it’s not just in the Philippines but it’s global,” Bird said.
Nonetheless, Bird said, there is light at the end of the tunnel. Many advanced economies are already seeing core inflation peak and with the Philippine economy two quarters behind these countries, it is possible that inflation will peak by mid-2023.
Apart from inflation, Bird said other factors that dampened the outlook for 2023 includes the negative impact of monetary policy tightening on the economy. Bird said with higher interest rates, this may discourage investments in the country.
He added that the recession in advanced economies and the continuation of the war in Ukraine are also expected to take their toll on the country’s economic growth. The Russian invasion of Ukraine has affected food and oil prices globally.
“Asia and the Pacific will continue to recover, but worsening global conditions mean that the region’s momentum is losing some steam as we head into the new year,” said ADB Chief Economist Albert Park.
“Governments will need to work together more closely to overcome the lingering challenges of Covid-19, combat the effects of high food and energy prices—especially on the poor and vulnerable—and ensure a sustainable, inclusive economic recovery,” Park added.
ADB lowered its forecast for inflation in developing Asia and the Pacific this year to 4.4 percent from 4.5 percent.
However, the bank raised its projection for next year to 4.2 percent from 4 percent, due to lingering inflationary pressures from energy and food.
ADB’s growth forecast for Southeast Asia this year was raised to 5.5 percent from 5.1 percent, amid robust consumption and tourism recovery in Malaysia, the Philippines, Thailand, and Viet Nam. Projections for next year, however, were lowered to 4.7 percent from 5 percent due to weakening global demand.
ADO is published every April, with an update in September and brief supplements published normally in July and December. Developing Asia refers to the bank’s 46 developing members.