World Bank cuts 2023 PH economic growth forecast

The World Bank’s latest forecast was lower than its 6 percent earlier projection. (Pexels photo)

MANILA – The World Bank on Monday downgraded its 2023 Philippine economic growth projection due high inflation and the weak external environment.

“GDP (gross domestic product) growth in the Philippine is projected to moderate to 5.6 percent in 2023 from 7.6 percent in 2022 due to still-elevated inflation, tight financial conditions, and weak external environment,” World Bank senior economist for East Asia and the Pacific Ergys Islamaj said during the online briefing for the East Asia and Pacific Economic Update report.

The World Bank’s latest forecast was lower than its 6 percent earlier projection.

Headline inflation picked up to 5.3 percent in August, still way above the government’s 2 to 4 percent target for this year.

According to the World Bank, Philippine headline inflation is expected to settle at 5.9 percent this year and ease to 3.6 percent in 2024 and 3 percent in 2025.

The elevated inflation will likely dampen the growth of household incomes in real terms.

World Bank East Asia and Pacific chief economist Aaditya Mattoo said the “big concern is the slowing global growth.”

For this year, the World Bank expects global growth to fall to 2.1 percent from 3.1 percent in 2022.

“Philippines, like all the countries in the region, depends on the rest of the world for exports, goods, and especially services and also a lot of Filipinos work abroad and send the remittances back,” Mattoo said.

“All those factors are tied to the state of the global economy. So our projection reflects, as I said, the fact that global growth has slowed down, financial conditions have become tighter and are expected to ease in the future,” he added.

Mattoo, however, said growth of the Philippine economy is expected to pick up to 5.8 percent in 2024 and 2025.

“And the good news in the Philippines I should say is that we expect economic activity to be supported by domestic demand to be led by private consumption,” he said.

Mattoo said newly-enacted reforms such as the Public Services Act which will make it easier for investments to flow into telecommunications, transport, will also provide an additional boost to growth.

The World Bank’s report, meanwhile, said the poverty incidence, measured using the World Bank’s poverty line for lower-middle income countries of USD3.65 per day, is projected to decrease from 17.8 percent in 2021 to 13.7 percent this year and further decline to 10.7 percent in 2025.

The report added risks to growth include El Niño and additional shocks from natural disasters that could potentially reverse the current inflation trajectory and weaken domestic demand.

The World Bank said delays in the execution of the government’s catch-up spending program could also have adverse effects on short-term growth prospects.

Improving growth prospects

To boost growth, the World Bank said there is a need to contain price pressures and improve budget utilization.

“Given agriculture’s susceptibility to extreme weather events, an enhanced and rapid food importation system will bolster domestic food supply. This will enable price stability despite recent increases in wages, transportation fares, and the price of imported rice,” it said.

The bank also cited the need to implement the government’s medium-term fiscal consolidation strategy to strengthen fiscal sustainability.

To improve long-term growth potential, the World Bank said it is imperative to address structural challenges, including underinvestment in physical and human capital, and low productivity.

Effective implementation of pro-investment reforms in renewable energy and sectors like trade, transport and telecommunications will generate economy-wide productivity gains.

Implementing reforms that encourage private sector participation in physical and human capital investments will also enhance growth potential even within the constraints of limited fiscal space.