ADB cuts Philippine growth outlook to 6%

The ASIAN Development Bank (ADB) lowered its growth forecast for the Philippines this year to 6% as high food prices continue to riseFlat.

In its latest Asian Development Outlook report released Thursday, the ADB said it lowered its Philippine gross domestic product (GDP) growth projection for this year to 6% from the 6.2% forecast in December. In 2023, the economy grew by a revised 5.5%.

For 2025, the ADB expects Philippine GDP to grow 6.2%.

“Broad domestic demand will boost economic growth… Moderating inflation and monetary easing bode well for household investment and consumption. Government consumption will recover as ongoing measures improve budget execution and address procurement delays,” the ADB said in the report.

The ADB’s latest projections are at the lower end of the Philippine government’s revised 2024 target of 6-7%, and below the 2025 target of 6.5-7.5%.

“[The] A downward adjustment of the outlook is actually a matter of doing it [due to] the upside risk for inFespecially how extreme weather conditions affect agricultural production and food pricesFcould impact inflation in the Philippines,” Cristina Lozano, chief country specialist of ADB Philippines, said during a media briefingFing.

Rising rice prices in global markets will continue to impact domestic rice prices in countries such as the Philippines, the ADB said.

“Reduced tariffs on some foods, including rice, corn and pork, were extended until the end of 2024 to help limit food inflation.Flationary pressures that we are already seeing due to the El Niño phenomenon,” Pavit Ramachandran, country director of the Philippines, told the brie.Fing.

He said inflation will temporarily accelerate above the target range of 2-4.5% in the second quarter, but return to target levels in the second half.

The ADB has made its debutFThe forecast for the Philippines is that it will rise to 3.8% in 2024, compared to 4% previously. Inflation is expected to decline further to 3.4% in 2025.

The Bangko Sentral ng Pilipinas (BSP) intervenesFThis year an average of 3.8% and next year 3.2%.

The ADB said the BSP could cut the policy rate in the second half of the yearFremain within the target range of 2-4%.

The BSP kept its key policy rate stable at 6.5% for the fourth time in a row on Monday.

At the same time, Ms. Lozano said slower growth in advanced economies such as the United States and Japan, and higher shipping costs due to attacks by Yemen’s Houthi rebels in the Red Sea, could also weigh on the Philippines’ growth prospects.

Rising shipping costs due to the Red Sea conflict may increaseFThat would have fallen by 0.4 percentage points, said Abdul Abiad, director of the ADB’s Macroeconomics Research Division.

FASTEST IN SOUTHEAST ASIA
Despite the lowered forecasts, the ADB still expects the Philippines to be the fastest growing economy in Southeast Asia, along with Vietnam.

The 6% growth projection for the Philippines is faster than the 4.6% and 4.7% growth forecast for Southeast Asia in 2024 and 2025, respectively.

In the Philippines, greater private sector participation and investment will serve as “key drivers” of growth in the short to medium term, Mr Ramachandran said.

“I don’t think it’s the lack of legislation or regulations…I think implementation can be improved,” he said.

Ms Lozano said opening key sectors such as railways, telecommunications and energy to foreign investors would boost the country’s growth. These industries have been opened to full foreign ownership under Republic Act No. 11647 or the Public Service Act.

“One of the main reasons why investors are a bit reluctant to invest in the Philippines is infrastructure developmentFIT [and] infrastructure gap, so that’s really important to address,” she said.

Fixed asset investment in the Philippines, which has exceeded 20% of GDP since 2013, lags far behind the 30% of GDP investment of neighboring countries such as Vietnam and Indonesia, the ADB said.

Meanwhile, the ADB raised its growth forecast for Asian development from 4.8% in December to 4.9% this year. This is slightly slower than the region’s GDP growth of 5% in 2023. The ADB expects developing Asia to grow 4.9% in 2025.

“Growth in developing Asia will remain robust this year despite uncertainty in the external environment. The end of interest rate hike cycles in most economies and the continued recovery in goods exports following a rebound in the semiconductor cycle will support growth,” ADB chief economist Albert F. Park said in the report.

Stronger growth in Southeast Asia and South Asia is expected to occur offhave caused this year’s slowdown in growth in other parts of the region.

The ADB warned of several downside risks to the outlook.

“Escalating conflicts and geopolitical tensions could disrupt supply chains and exacerbate commodity price volatility. Risks related to the course of US monetary policy, the stress in PRC real estate markets and the impact of adverse weather-related events are other pressure points for the region,” Mr Park said.

The ADB said a “worse than expected” slowdown in China’s property market could dampen growth in the region.

Asia’s GDP excluding China is expected to be slightly higher at 5%, while China’s GDP will be 4.8% and 4.5% in 2024 and 2025, respectively. — Beatriz Marie D. Cruz