The World Bank has set its sights on a projected growth of 5.8% for the Philippines in 2024 and 2025. However, the growth estimate for this year has been scaled back to a modest 5.6%, a drop from previous forecasts. This adjustment is attributed to a mix of external and internal challenges including geopolitical tensions, trade complexities, and disruptions caused by climate-related incidents.
During a recent press briefing on December 5th, the World Bank unveiled the December 2023 Philippines Economic Update (PEU). This update mirrored the insights from the October East Asia Pacific (EAP) report. According to Ralph Van Doorn, a Senior Economist at the World Bank, the downgrade in GDP forecasts was influenced by global and local growth not meeting anticipated levels, notably a sluggish second-quarter domestic growth.
Despite a third-quarter improvement to 5.9%, the local economy’s performance remained below the government’s initial projection of six to seven percent growth. The year’s end marks an average GDP growth of 5.5%, notably lower compared to the first three quarters of 2022, which saw a 7.7% increase.
Looking ahead, the World Bank forecasts a 5.8% growth for the Philippines in 2024 and 2025, banking on improvements in domestic demand propelled by the recovery of the tourism sector and consistent performance within the IT-BPO industry. This surge in demand is expected to create jobs, escalate household incomes, and drive consumption in tourism and related sectors.
The World Bank economist anticipates a boost in global trade growth coupled with East Asia’s economic expansion, contributing to stronger trade and manufacturing growth in the coming years. Consumption remains a pivotal growth engine, backed by a robust labor market, steady remittances, and decreased inflation.
Foreseeing an uptick in investment growth, Van Doorn highlights investment reforms and a commitment to sustaining high public investment levels despite ongoing fiscal consolidation as contributing factors. He also forecasts a gradual decline in the country’s fiscal deficit and public debt level by 2028.
As the year draws to a close, the World Bank predicts headline inflation to settle at 5.9%, slightly lower than the Bangko Sentral ng Pilipinas’ forecast of 6.1%. Looking ahead to 2024 and 2025, the estimated consumer price index is expected to drop within the target range of two to four percent.
While the Philippine peso remains steady against the US dollar, the World Bank notes its slight weakening in 2023 compared to other regional currencies. Despite this, the peso has appreciated by 1.8% against a basket of major trading partner currencies.
However, the growth outlook is not without its risks. External factors such as geopolitical tensions, trade restrictions, and potential climate disturbances remain concerns. Domestically, threats persist from climate-related disruptions like El Niño, which could challenge supply chains.
To bolster long-term growth potential, the World Bank emphasizes addressing low productivity and structural challenges by implementing pro-investment reforms in renewable energy, trade, transport, and telecommunications. Strengthening the resilience of crucial sectors like agriculture, water supply, sanitation, education, human settlements, and healthcare is also highlighted to mitigate the impacts of climate change and natural disasters.
Ndiamé Diop, the World Bank’s Country Director for several countries including the Philippines, highlighted that high inflation, elevated interest rates, and global uncertainties stemming from ongoing conflicts may affect growth and investments. Implementing recent key reforms, particularly in facilitating private investments, is crucial to counter these challenges, stimulate private investment, and drive job creation and poverty reduction.
The World Bank commended legislative actions taken to enhance private investments in the country in recent years. These reforms include amendments to various acts and codes, aimed at boosting the business environment and supporting long-term investment decisions, ultimately fostering economic growth and development.