ADB: Philippine economy to post robust growth in 2023, 2024 despite inflation pressures

Philippine economic growth is expected to moderate this year from 2022’s forecast-beating outturn but will remain on a healthy expansion mode, underpinned by rising domestic demand and a recovery in services particularly tourism, according to a new report released by the Asian Development Bank (ADB) today.

ADB’s flagship economic publication Asian Development Outlook (ADO) April 2023 forecasts the Philippine economy to grow by 6.0 per cent this year, climbing further by 6.2 per cent in 2024. A recovery in employment and retail trade, sustained expansion in the manufacturing sector, and rising public infrastructure spending will support growth. 

However, risks from a sharper-than-expected slowdown in major advanced economies, heightened geopolitical tensions, and inflation stickiness could dampen the outlook for gross domestic product (GDP) growth. 

“The Philippines will grow at its potential this year and next and is on track toward its goal to become an upper middle-income country,” said ADB Philippines Country Director Kelly Bird. “Like most other economies, the Philippines will be increasingly challenged by the impacts of climate change and the effects of emerging technologies on the labour market.” 

“Key to sustaining a strong growth momentum is keeping public infrastructure spending at levels above 5.0 per cent of GDP, as the government has planned for this year and in the medium term. High-impact infrastructure projects that will help connect communities to markets and public services and provide access to jobs and livelihood will help increase rural incomes and support inclusive growth,” he said.

Inflation is expected to average 6.2 per cent in 2023 before easing to 4.0 per cent in 2024, according to the report. Local food supply constraints and rising global commodity prices led to high inflation rates in early 2023. Inflation is projected to decelerate in the second half of 2023 and through 2024 as the series of monetary policy tightening take effect and global commodity prices ease. 

The country’s unemployment rate improved to 4.8 per cent in January 2023 from 6.4 per cent in the same period a year earlier, even lower than pre-pandemic levels. Some 4.1 million jobs were added over the year, mainly from the services sector as the tourism started to rebound from the COVID-19 pandemic. This bodes well for sustained private consumption, which should get an additional boost from steady remittances from overseas Filipino workers (OFWs).

The current account deficit is forecast to narrow, in part due to strong service exports, particularly from business process outsourcing, recovery in tourism receipts, and higher OFW remittances. Robust domestic demand will continue to drive imports of both consumer and capital goods.

Despite impressive gains in economic growth and poverty reduction, the country faces the challenge of addressing climate change and risks to food security, especially for the bottom two income deciles, as malnutrition and hunger incidence persist, the report says. 

The challenge requires a multipronged approach that considers both supply and demand factors. This includes addressing bottlenecks in local food production and agricultural productivity and trade and raising household incomes and incentives for better health and nutritional outcomes. Social protection, including food voucher programs, play a central role in alleviating poverty and hunger, says the report.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.