World Bank upgrades Philippine growth projection as consumption rebounds in region
MANILA, Philippines — The World Bank upgraded its growth forecast for the Philippines this year due to a resurgence in consumer spending amid a projected global economic downturn.
In the World Bank’s East Asia and Pacific October 2022 Economic Update released on Tuesday, the gross domestic product was projected to hit 6.5% this year, raised from the previous 5.7% in April. This projection fell at the low-end of the Marcos Jr. administration’s target of 6.5-7.5% growth this year.
“The main reason is that strong bounce-back of private consumption as in most countries in the region, evident to us that the Philippines saw a revival of both public and private investments,” said Aaditya Mattoo, World Bank East Asia and Pacific chief economist.
The World Bank’s forecast stood in stark contrast to the International Monetary Fund, which slashed its projection to a similar 6.5% growth in 2022.
The projection was not uncommon however, as the World Bank noted that countries in East Asia and the Pacific witnessed household consumption rebound after the Delta variant surge last year and a global appetite for the region’s exports resurfaced.
However, Mattoo acknowledged that the economy received a much-needed lift from election-related spending. The World Bank economist likewise attributed “reasonably better” exports and tourism revival which boosted the domestic economy since it was reopened early in the second quarter.
The Philippine economy grew 7.4% in the second quarter, significantly lower than what economists anticipated as inflation hampered growth then.
Inflation, as measured in the consumer price index, eased to 6.3% in August but could peak this month or in October, according to the Bangko Sentral ng Pilipinas. For that, the World Bank is wary of the impact of inflation on the economy’s growth especially since the onslaught of typhoon ‘Karding’ could push consumer prices further upward, particularly rice.
“While economic growth is picking up, the threat of inflation can erode these gains. Since food and energy account for about 70 percent of household expenditures for the poor, the sharp price spikes will erode their purchasing power,” the World Bank said in a separate report released Tuesday, September 27.
If the World Bank’s forecast is realized, the Philippine economy would still be one of the fastest-growing economies bouncing back from pandemic fallout in the region this year. This is despite quickening inflation, a depreciating local currency and the impact of expensive fuel prices on consumption.
The World Bank noted trends that could hamper growth within the region, which aside from inflation include softening appetite for the region’s exports, aggressive monetary policy tightening from central banks and capital flight.
For this, Mattoo noted that the country’s fiscal policy left space for growth since monetary policy stayed hawkish as of late following the bevvy of interest rate hikes injected by the BSP.
“While some aspect of monetary policy tightened, fiscal policy is a little bit more accommodative,” he said.
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