The World Bank (WB) raised their 2022 growth forecast for the Philippine economy to 6.3 percent from 5.7 percent as forecast in April and reiterated in June, despite concerns of growth deceleration across East Asia and the Pacific (EAP), mainly due to a strong rebound in private-sector consumption/spending.
Meanwhile, for the entire region, the World Bank slashed the forecast growth to 3.2 percent from 5 percent in April.
In an update of the outlook on the EAP economy, the World Bank noted that the global economic slowdown is beginning to dampen demand for the region’s exports of commodities and manufactured goods.
However, World Bank EAP chief economist Aaditya Mattoo said in a press conference that in the Philippines, they observed not only a recovery in both public and private investments, but also a combination of higher domestic demand, improving export earnings, and also some revival of tourism.
“Even though some aspects of the Philippines’ monetary policy have tightened, its fiscal policy seems to us to be a little bit more accommodative, and therefore we upgraded [our growth forecast],” Mattoo said.
This suggests that government spending is offsetting the dampening effect of rising interest rates on private-sector consumption or consumer spending.
Mattoo added that the World Bank saw that across East Asia and the island economies of the Pacific, there were the triple concern of growth deceleration, higher interest rates, and the cost of policy instruments such as price controls and subsidies.
“In the Philippines’ case there is an interesting contrast,” he said. “While it comes to agricultural policies, the Philippines has implemented significant liberalization and relied more on cash transfers in general rather than price subsidies, but when it comes to energy and fuel, less .”
The update report showed that the cost of Philippine subsidies — for agriculture and fuel as well as other cash transfers — represented a total of 0.35 percent of GDP. On the other hand, the fiscal windfall from these expenses represented 0.41 percent of GDP.
Also, the report showed that recovery has been uneven across EAP countries and output remained below pre-pandemic levels in many of the region’s economies.
The Philippines, along with Cambodia and Malaysia, is expected to surpass pre-pandemic levels of output this year. This trio trails China and Vietnam which did so in 2020 as did Indonesia and Malaysia in 2021.
Across the region, the pandemic raised government spending and resulted in an increase of public debt by more than 10 percent of GDP.
Worst hit were the Philippines in East Asia with public debt rising by 20 percent of GDP compared to pre-pandemic levels and Fiji among the Pacific islands by 30 percent of GDP.
The Marcos administration’s economic team wants to reduce the government’s outstanding debt from the 63.5-percent of gross domestic product as of August to less than 60 percent — the level that is considered internationally as “prudent” — by 2025.