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Thursday, April 18, 2024

Q3 growth spurs hike in World Bank’s PHL forecast

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THE better-than-expected growth in the third quarter prompted the World Bank to raise its GDP forecast for the Philippines, but the coming global recession will likely dampen the country’s economic prospects in the new year.

In a virtual briefing on Tuesday, World Bank Senior Economist Ralph van Doorn told reporters the country’s GDP growth is now forecasted to hit 7.2 percent in 2022 and 5.4 percent in 2023.

In September 2022, van Doorn said the World Bank initially estimated GDP growth to average 6.5 percent in 2022 and 5.8 percent in 2023.

“High inflation tends to inflict the greatest harm on low-income households where inflation often outpaces wage growth, which these households rely on,” van Doorn, World Bank Senior Economist, said.  

“Besides managing the interest rate, addressing inflation entails employing various measures including freer trade, lower tariffs and non-tariff barriers to help augment domestic supplies as needed and support agriculture production through extension services, seeds, fertilizers,” he added.

The World Bank said the risks next year include reduced consumer demand, high inflation and high interest rates that are expected to temper household spending and investments.

The Washington-based lender said higher interest rates will limit the growth of private lending and investments at a time when public spending will likely slow as the country undertakes “fiscal consolidation” or implements measures to rein in government deficits and reduce debt.

Also, with global growth expected to decelerate next year, external demand from advanced economies, which are key buyers of Philippines merchandise exports, will be subdued, the World Bank said.

Ndiamé Diop, World Bank Country Director for Brunei, Malaysia, Philippines, and Thailand said that given these developments, sustaining the country’s investments in health and education is crucial in order to reduce vulnerabilities from the scarring impact of the pandemic, especially among the poor and most vulnerable.

“Shocks from the Covid-19 pandemic have worsened child malnutrition and stunting and hampered student learning, especially among the poor and most vulnerable families,” Diop said.

“If unmitigated, these shocks can have persistent impacts on people’s wellbeing and damage their future productivity, earnings, and capacities for innovation. For this reason, sustained investments in agriculture, nutrition and education are imperative despite pressure for fiscal consolidation,” he added.

Medium-term prospects

The country’s prospects for the medium term are also not as brisk, as the Philippine economy is not expected to hit a growth of 6 percent or better.

Based on the Philippine Economic Update (PEU), the World Bank also expects the country’s GDP growth to average 5.9 annually between 2024 and 2025.

In order to address the weaknesses in the medium term, the World Bank recommended that efforts be exerted to strengthen food security in the country.

Growth prospects for the agriculture sector remain poor due to a combination of chronic underinvestment and intense vulnerability to weather-related shocks.

Agriculture comprised less than 10 percent of the country’s gross domestic product (GDP), and the sector’s contribution to growth is minimal in the past five years. However, it employs over 22 percent of the labor force, and domestic food production influences trends in inflation.

Increasing agricultural productivity, the PEU highlights, will be crucial to help ensure food security and boost more inclusive growth. To this end, efficient use of public funds for public investments will help address the structural constraints including value chain weaknesses and poor business climate for the agri-food system.

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