Philippine economic growth will fall short of target this year and the next owing to persistent inflation and global headwinds, the Asian Development Bank (ADB) said on Wednesday.
In a September update to its outlook for the region, the Manila-based lender lowered its 2023 gross domestic product (GDP) growth forecast for the country to 5.7 percent from 6.0 percent.
That for next year was kept at 6.2 percent.
Both projections fall below the government's 6.0- to 7.0-percent target for 2023 and 6.5 to 8.0 percent for 2024 to 2028.
"We have downgraded our forecast for this year," ADB regional cooperation officer Dulce Zara said during the launch of the ADB report.
"This is mainly due to the weakening in domestic demand, compared with last year's performance with the reopening of the economy," she added.
The country's prospects remain positive, however, with private consumption and
investment expected to continue underpinning economic growth.
Reduced inflationary pressures next year also bode well for domestic demand, the ADB said.
It noted that public spending was likely to accelerate next year and that infrastructure expenditures would also remain positive given projects in the pipeline.
The proposed budget for next year is also higher, the lender said, with social services accounting for nearly 40 percent of the total outlay. The government was also said to be mobilizing more resources to support investments without breaching fiscal consolidation targets.
Private consumption, while expected to ease from 2022's rapid growth, was forecast to remain strong given low unemployment, higher remittances and a cut in personal income tax rates earlier this year.
Indicators of future economic activity, however, were said to be mixed. In particular, the purchasing managers' index signaled a contraction in August but manufacturers remained upbeat about prospects for the year ahead.
Reforms, including those that opened up previously restricted sectors, will boost private investment, the ADB said, complementing the country's ratification of the Regional Comprehensive Economic Partnership.
The regulatory framework for public-private partnerships is also being strengthened, it noted.
Services, which account for about 60 percent of GDP, are expected to continue posting healthy growth. Retail, in particular, will benefit from private consumption while rising tourist numbers would boost hotels, restaurants, transportation and other related sectors.
Inflation forecasts for this year and the next were maintained at 6.2 percent and 4.0 percent, respectively, but the pace of easing could slow due to the impact of the El Niño weather pattern and renewed global supply constraints.
This will likely prompt monetary authorities to keep key interest rates unchanged for the rest of 2023 before cutting next year, the ADB said.
The current account deficit, meanwhile, was forecast to narrow this year on the back of strong service exports and remittances. Merchandise exports, meanwhile, will likely remain subdued due to weakness in markets such as the United States, Japan and China.
The ADB warned, however, that downside risks were clouding the outlook for the Philippines.
"Risk factors include a sharper-than-expected slowdown in major advanced economies, heightened geopolitical tensions and global commodity prices above expectations," it said.
"An intensified and prolonged El Niño, other severe weather disturbances and a continuation of the Russian invasion of Ukraine could elevate inflationary pressures," the ADB added.
Source: The Manila Times