The World Bank on Wednesday revised upward its Philippine economic growth projection to 6 percent this year from 5.6 percent as strong domestic demand is expected to drive growth.
“Despite weak global conditions, we expect strong domestic demand to grow to 6 percent in 2023 and move to its growth potential over the medium term,” World Bank senior economist Ralph Van Doorn said in a briefing for the Philippines Economic Update (PEU) report.
The World Bank’s latest forecast falls within the government’s 6 to 7 percent economic growth target for the year.
For 2024 and 2025, World Bank expects the Philippine economy to grow by 5.9 percent.
The report said the strong domestic demand this year is underpinned by consumer spending, drawing strength from the continuing jobs recovery and the steady flow of remittances.
Other drivers of growth include fixed capital investment as a result of upbeat domestic activity and improved business confidence.
The services sector is also expected to support growth while the recovery of international tourism will boost the expansion of transportation services, accommodation, and food services.
Aside from these, the amendments to the Public Service Act, Foreign Investment Act, and Retail Trade Liberalization law are expected to encourage private investment and strengthen growth in the country over the medium term.
However, World Bank country director for Brunei, Malaysia, Philippines, and Thailand Ndiame Diop pointed out that persistent global and domestic risks 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,” he said.
Diop said ensuring efficient delivery of social protection programs will require speeding up current government reforms, including the adoption of the national identification (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 country’s economic outlook, meanwhile, 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 that could hamper Philippine exports.
On the domestic front, World Bank 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.
It also expects headline inflation to settle at 5.7 percent this year, 3.6 percent in 2024, and 3 percent in 2025.
To address inflation, Doorn said reducing tariff and non-tariff barriers, enhancing domestic supplies and bolstering agriculture with extension services, seeds, and fertilizers are needed.
“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,” he said.
The World Bank also cited the need to sustain investments in climate change initiatives, particularly in the agriculture sector.
These 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 World Bank calls for a transition towards cleaner energy to further the country’s climate change mitigation efforts.
It said the 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.*PNA