Foreign think tank raises Philippines GDP growth forecast

FocusEconomics has raised the gross domestic product (GDP) growth forecast for the Philippines to 6.9 percent this year, from an earlier 6.7 percent estimate, to remain the fastest growing economy in Southeast Asia.

The Barcelona-based think tank said it expects the economic momentum to be carried over by the faster-than-anticipated 8.3 percent growth in the first quarter, from a 7.8 percent growth in the fourth quarter.

“GDP is set to grow at the fastest pace in ASEAN this year. Support will come from reduced COVID-19 restrictions, expansionary fiscal and monetary stances, and the government’s Build Build Build infrastructure program. Key factors to watch include fiscal and external imbalances, and fiscal decentralization reforms,” FocusEconomics said.

Despite the upgrade, the projected GDP expansion remains slower than the seven to eight percent growth target set by the Cabinet-level Development Budget Coordination Committee (DBCC) for this year.

Prior to the stronger-than-expected expansion in the first quarter, the Philippines exited the pandemic-induced recession with a GDP growth of 5.7 percent last year, reversing the 9.6 percent contraction in 2020 due to the impact of the COVID-19 quarantine and lockdown protocols on the economy.

“The loosening of COVID-19 restrictions at the end of the quarter supported private consumption. Turning to Q2, the growth rate is likely to remain one of the fastest in the region,” it said.

According to FocusEconomics, private spending will continue to be boosted by loosened COVID-19 restrictions.

It also noted that the manufacturing purchasing managers index (PMI) rose at the fastest rate in nearly five years in April.

“That said, rising inflation will be hampering consumer spending, while the pre-election spending ban will have dampened public expenditure,” the think tank said.

For 2023, FocusEconomics retained its economic growth forecast at 6.1 percent.

Inflation averaged 4.1 percent in the first five months and breached the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) after quickening to 5.4 percent in May from 4.9 percent in April.

After delivering back-to-back rate hikes last June 23, the central bank’s Monetary Board raised its inflation forecasts to five percent instead of 4.6 percent for this year and to 4.2 percent instead of 3.9 percent for next year.

After starting its interest rate liftoff last May 19 with a 25-basis point rate increase, the BSP raised anew its key policy rates by another 25 bps last Thursday to curb rising inflationary pressures.

Source: Philstar and FocusEcomomics

Philippines Monthly Economic Developments (May 2022)

The World Bank kept its growth outlook on the Philippine economy on expectations that “strong domestic conditions” would counter external headwinds.

In its “Philippine Economic Update” report released Wednesday, the Washington-based multilateral lender projected the economy to grow 5.7% this year, unchanged from its previous report.

If realized, World Bank’s forecast would fall below the government’s downwardly revised growth target of 7-8%. From 2023 to 2024, the Bank expects the economy to grow at an average of 5.6% annually.

Explaining its forecast, World Bank said growth is expected to benefit from an improving domestic environment, characterized by declining COVID-19 cases, despite a “weak external environment.”

Among the external risks that World Bank identified are rising interest rates abroad and at home, which could cripple credit growth and consumption amid accelerating inflation. A weak Chinese and US economy, both major trading partners of the Philippines, could also weigh on domestic growth.

“The return of robust domestic activity is expected to buoy growth at a time of weak external environment, reeling from a global growth deceleration, rising inflation, and geopolitical turmoil,” the Bank said.

“The outlook faces downside risks from geopolitical uncertainty, abrupt tightening of global financing conditions, and growth deceleration of main trading partners like the United States and China. While the number of COVID-19 cases has been low for a long period, the threat of a new variant-driven surge hangs over the outlook,” it added.

Philippines Monthly Economic Developments (May 2022)

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Source: Worldbank

World Bank slashes global growth forecast to 2.9%

The World Bank on Tuesday slashed its global growth forecast by nearly a third to 2.9% for 2022, warning that Russia’s invasion of Ukraine has compounded the damage from the COVID-19 pandemic, and many countries now faced recession.

The war in Ukraine had magnified the slowdown in the global economy, which was now entering what could become “a protracted period of feeble growth and elevated inflation,” the World Bank said in its Global Economic Prospects report, warning that the outlook could still grow worse.

In a news conference, World Bank President David Malpass said global growth could fall to 2.1% in 2022 and 1.5% in 2023, driving per capita growth close to zero, if downside risks materialized.

Malpass said global growth was being hammered by the war, fresh COVID lockdowns in China, supply-chain disruptions and the rising risk of stagflation — a period of weak growth and high inflation last seen in the 1970s.

“The danger of stagflation is considerable today,” Malpass wrote in the foreword to the report. “Subdued growth will likely persist throughout the decade because of weak investment in most of the world. With inflation now running at multi-decade highs in many countries and supply expected to grow slowly, there is a risk that inflation will remain higher for longer.”

Between 2021 and 2024, the pace of global growth is projected to slow by 2.7 percentage points, Malpass said, more than twice the deceleration seen between 1976 and 1979.

The report warned that interest rate increases required to control inflation at the end of the 1970s were so steep that they touched off a global recession in 1982, and a string of financial crises in emerging market and developing economies.

Ayhan Kose, director of the World Bank unit that prepares the forecast, told reporters there was “a real threat” that faster than expected tightening of financial conditions could push some countries into the kind of debt crisis seen in the 1980s.

While there were similarities to conditions back then, there were also important differences, including the strength of the U.S. dollar and generally lower oil prices, as well as generally strong balance sheets at major financial institutions.

To reduce the risks, Malpass said, policymakers should work to coordinate aid for Ukraine, boost production of food and energy, and avoid export and import restrictions that could lead to further spikes in oil and food prices.

He also called for efforts to step up debt relief, warning that some middle-income countries were potentially at risk; strengthen efforts to contain COVID; and speed the transition to a low-carbon economy.

The bank forecast a slump in global growth to 2.9% in 2022 from 5.7 percent in 2021, a drop of 1.2 percentage points from its January forecast, and said growth was likely to hover near that level in 2023 and 2024.

It said global inflation should moderate next year but would likely remain above targets in many economies.

Growth in advanced economies was projected to decelerate sharply to 2.6% in 2022 and 2.2% in 2023 after hitting 5.1% in 2021.

U.S. growth was seen dropping to 2.5% in 2022, down from 5.7% in 2021, with the euro zone to see growth of 2.5% after 5.4%.

Emerging market and developing economies were seen achieving growth of just 3.4% in 2022, down from 6.6% in 2021, and well below the annual average of 4.8% seen in 2011-2019.

China’s economy was seen expanding by just 4.3% in 2022 after growth of 8.1% in 2021.

Negative spillovers from the war in Ukraine would more than offset any near-term boost reaped by commodity exporters from higher energy prices, with 2022 growth forecasts revised down in nearly 70% of emerging markets and developing economies.

The regional European and Central Asian economy, which does not include Western Europe, was expected to contract by 2.9% after growth of 6.5% in 2021, rebounding slightly to growth of 1.5% in 2023. Ukraine’s economy was expected to contract by 45.1% and Russia’s by 8.9%.

Growth was expected to decelerate sharply in Latin America and the Caribbean, reaching just 2.5% this year and slowing further to 1.9% in 2023, the bank said.

The Middle East and North Africa would benefit from rising oil prices, with growth seen reaching 5.3% in 2022 before slowing to 3.6% in 2023, while South Asia would see growth of 6.8% this year and 5.8% in 2023.

Sub-Saharan Africa’s growth was expect to slow somewhat to 3.7% in 2022 from 4.2% in 2021, the bank said.

Source: BusinessWorld