Economic Outlook for 2023
In a surprising move on Wednesday, the Manila-based Asian Development Bank (ADB) revised its economic growth projection for the Philippines in 2023 from 6 percent down to 5.7 percent. The adjustment, outlined in its Asian Development Outlook (ADO) September 2023 update, cites concerns related to inflation and global economic headwinds.
However, the bank maintained its 6.2 percent forecast for the country’s gross domestic product (GDP) in 2024, pointing to robust household consumption and continued investment in infrastructure and social services.
Inflation and Global Uncertainty Impact on Growth
The Asian Development Bank, a multilateral lender with a significant presence in the region, had initially set a growth target of 6 percent for the Philippines in 2023. This reduction to 5.7 percent stems from rising inflation and uncertainties in the global economic landscape.
Positive Factors Driving Philippine Economic Growth
Despite this adjustment, ADB Philippines Country Director Pavit Ramachandran remains optimistic about the nation’s economic prospects. “The Philippines’ growth story remains strong despite an expected moderation in 2023,” he affirmed in the report.
He pointed to factors such as low unemployment, sustained remittances from overseas Filipinos, and a thriving services sector, including tourism, as key drivers of growth. Ramachandran also highlighted the government’s ambitious infrastructure projects, expected to further stimulate consumption, create jobs, and attract investment.
Infrastructure Investment and Export Strength
ADB predicts that the Philippine government will continue to allocate around 5 percent of domestic output to infrastructure spending. This dedication to large-scale projects is expected to play a pivotal role in bolstering the nation’s economy.
Tourism and Remittances
Higher tourism revenues, steady remittances, and strong service exports, especially in the business process outsourcing sector, have the potential to boost the country’s current account, countering the decrease in merchandise exports.
Global Risks Loom
While there is reason for optimism, the Asian Development Bank also acknowledges potential downside risks to the Philippines’ economic growth. These risks include geopolitical tensions on the global stage and the possibility of a more severe-than-anticipated slowdown in major advanced economies.
Recent Economic Performance
Notably, the Philippine economy faced headwinds in the second quarter of 2023, marking the third consecutive quarter of decline. Output slipped to 4.3 percent, down from 6.4 percent in the previous quarter and 7.5 percent in the same period the previous year. This decline was attributed to factors such as elevated inflation and rising interest rates.
Government’s Growth Target
In contrast to ADB’s adjusted projection, the Philippine government maintains an ambitious growth target for the year, aiming for a range between 6 and 7 percent.
ADB’s report maintains its inflation forecasts at an average of 6.2 percent for 2023 and 4 percent for 2024.
The bank also highlighted potential challenges on the inflation front, including the possibility of severe weather disturbances, such as the El Niño dry weather phenomenon. Moreover, pressure from elevated global commodity prices and second-round effects from higher transport fares and minimum wage hikes could hinder the easing of headline inflation.
Current Inflation Levels
As of the end of August 2023, the rate of price increases averaged 6.6 percent, significantly higher than the government’s target range of 2 to 4 percent. August saw an acceleration in inflation, rising to 5.3 percent from the previous month’s 4.7 percent, ending a six-month decline primarily due to upticks in food prices caused by weather disturbances.
The Asian Development Bank’s revised growth projection underscores the delicate balance between positive domestic drivers and external risks that shape the economic outlook for the Philippines in 2023. As the year unfolds, the nation will need to navigate these challenges to achieve its growth aspirations.