The World Bank has raised its 2023 growth forecast for the Philippines to 6.0 percent from 5.6 percent previously, citing strong domestic demand.
The Washington-based multilateral organization still expects a slowdown to follow, keeping its projections for 2024 and 2025 at 5.9 percent, figures released on Wednesday showed.
"Despite weak external conditions, strong domestic demand will drive the Philippine economy to grow at 6.0 percent in 2023 and gradually decline over the medium term," the World Bank said in its latest Philippine Economic Update.
"This upward revision reflects the latest global growth upgrade for 2023 and the continued strength in domestic demand," it added.
"Private consumption growth will be supported by improved employment, steady remittances and better consumer sentiments amid an expected decline in headline inflation and winding down of pent-up demand."
In its latest Global Economic Prospects report released on Tuesday, the World Bank said that it expected the world economy to grow by 2.1 percent this year, an improvement from the 1.7 percent seen in January.
A recovery to 2.4 percent was forecast for 2024.
Private consumption growth in the Philippines is expected to remain robust at 6.1 percent this year and average 6.0 percent over the next two years.
Private investment growth, meanwhile, will be dampened by high interest rates and a subdued global environment.
Capital formation growth was forecast to slow to 8.6 percent this year from 13.8 percent in 2022 but improved business sentiment and recent ownership reforms could encourage private investment and attract more foreign direct investments.
The service sector will continue driving the economy's growth, the World Bank said. Tourism will benefit from domestic and global demand, leading to growth in transportation services, accommodation and food, and wholesale and retail trade services.
Services growth will also be supported by the information technology-business process outsourcing sector, which will benefit from cost-cutting initiatives by foreign firms.
Public investments will support the construction sector and drive industry growth but manufacturing, however, is expected to experience a slowdown due to a global growth deceleration and a consumption shift to more services.
As for agriculture, growth is expected to be "tepid" given the country's vulnerability to weather-related events and structural issues that lower productivity.
Inflation is projected to fall within the target range by the fourth quarter but still average 5.7 percent this year, only returning to the 2.0- to 4.0-percent range in 2024-2025.
The World Bank expects the country's current account deficit to narrow to 3.8 percent of gross domestic product (GDP) this year and fall further to 3.3 percent in 2024-2025 as external demand improves.
The fiscal deficit is also expected to fall, to 6.0 percent of GDP in 2023 from 7.3 percent last year, given an expected decline in public spending.
Public capital outlays were forecast to decline to 5.0 percent of GDP from 5.9 percent last year but stay above 5.0 percent over the forecast horizon.
The debt-to-GDP ratio is expected to keep rising over the short term and peak at 61.7 percent in 2024 given still-elevated financing needs.
"However, debt remains sustainable as the debt-to-GDP ratio is expected to revert to a downward trajectory beginning in 2025 owing to robust growth and the successful implementation of the medium-term fiscal consolidation agenda," the World Bank said.
External risks to the Philippines outlook, the bank said, include the possibility of higher-than-expected global inflation, tighter global financing conditions and an escalation of geopolitical tensions.
Stubborn core inflation that could lead to larger-than-anticipated monetary tightening in many countries, and the recent banking turmoil may also unsettle financial markets.
"From the domestic front, the threat of El Niño and supply chain bottlenecks may yet again raise food supply challenges and place upward pressure on food prices," the World Bank added.
In an accompanying statement, the bank called for improvements in the efficiency of social protections, saying these were needed to protect the poor and the most vulnerable from economic shocks.
"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," World Bank Country Director Ndiame Diop said.
Ralph Van Doorn, World Bank senior economist, said that risks from inflation needed the implementation of measures such as reducing tariff and non-tariff barriers, enhancing domestic supplies and bolstering agriculture with extension services, seeds and fertilizers.
"In the face of escalating prices, a comprehensive strategy is needed to guarantee sufficient food for everyone," he said.
Source: Worldbank and Business World and Manila Times