The World Bank has slightly downgraded its growth forecast for the Philippines this year as it took into account the impact of the conflict between Russia and Ukraine.
According to the World Bank’s East Asia and Pacific Economic Update released yesterday, the economic forecast for the Philippines this year has been revised downwards to a growth of 5.7 percent from the previous projection of 5.8 percent in October last year.
“It is a very slight reduction in the Philippines, and the reason for it is that, first of all, our (previous) estimate was already quite conservative… so that downgrade is small. The reason for the downgrade is primarily the war in Ukraine,” Aaditya Mattoo, World Bank East Asia and Pacific chief economist, said in a virtual briefing yesterday.
The report also showed that in a low case scenario, if global conditions worsen and national policy responses are weak, growth could slow to 4.9 percent for the Philippines.
“…(the Philippines) was beginning to open up, because of the success in containing COVID-19. It’s unfortunate that its opening up is coinciding with new global uncertainties that might continue to inhibit tourism,” Mattoo also said.
“We believe that this (Russia-Ukraine conflict) is a shock for the whole world and it is going to affect the Philippines also because it’s a net importer of fuel. It is a country which is exposed to the world in terms of both for exports and finance,” Mattoo added.
However, Mattoo said these vulnerabilities in the Philippines are “less” versus other countries.
“It’s not as dependent on exports as a country like Vietnam, and it is not as dependent on external financing, as for example, a country like Malaysia. So we have made a downgrade, but it’s a small downgrade because the main reason is our original projection for the Philippines was quite conservative to begin with,” Mattoo said.
According to the World Bank’s country-specific Macro Poverty Outlook, growth will draw strength from the domestic environment with declining COVID-19 cases, looser restrictions and wider reopening.
“The strong domestic condition will help compensate for the weak external environment, reeling from a global growth deceleration, rising inflation and geopolitical turmoil,” it said.
Mattoo meanwhile noted one interesting point for the Philippines that is worth recognizing.
“The Philippines is an example of, for all other countries in the region, how the shocks are changing the trade landscape. The Philippines has relied on tourism but it also has the capacity to provide software and other backup services to the rest of the world,” Mattoo said.
“Digitization is increasing the scope for more sophisticated services to be delivered all over the world. One structural shift which will be extremely plausible in the Philippines is to try and shift resources away from say (a) sector like tourism and other sectors, towards these digitally delivered services and exploit the tremendous potential capacity it has to grow through the delivery of these services,” he added.
However, Mattoo said that will require investments in education to remedy the scars created by the pandemic as we’ll as in infrastructure particularly broadband, which is necessary to deliver services.
He also stressed the need to develop the regulatory mechanisms, privacy law and other things which strike an appropriate balance between domestic needs and foreign regulatory requirements,” Mattoo said.
According to the World Bank, following current growth projections, poverty incidence will decrease to 16.2 percent in 2022 from the estimated 18.3 percent poverty incidence in 2021, and will continue to decline through 2024.
“The Russia-Ukraine war may induce inflation spikes that may slow down the decline in poverty, mainly through the knock-on effect of fuel price increases on food prices that disproportionately hurt the poor and economically vulnerable,” it said.
The report noted significant risks that emanate from the external environment.
“Central banks in advanced economies have signaled imminent interest rate hikes, which could lead to financial volatility in emerging markets. Rising global commodity and energy prices will intensify inflationary pressure,” the World Bank said.
“Domestically, the political transition risks policy discontinuity that may undermine market confidence. While the country has entered a benign phase of the pandemic, threat of a new variant-driven surge hangs over the outlook. Nevertheless, the country has adopted systems that allow more public mobility and localized responses to outbreaks, reducing adverse economic impacts,” it added.
