Despite external risks, the Philippines’ recovery is expected to gain traction this year as pandemic restrictions eased, allowing for more economic activities, the Asian Development Bank (ADB) said.
In the Asian Development Outlook 2022 report released on Wednesday, April 6, the Manila-based multilateral institution maintained its 2022 gross domestic product (GDP) outlook for the country at six percent.
ADB growth forecast, however, is below the government’s seven percent to nine percent target.
ADB said this year’s growth will be driven by rising domestic investment and consumption on the back of the government’s easing Covid-19 quarantine restrictions.
Likewise, the government’s decision to reopen the economy, lift mobility restrictions, expand Covid-19 vaccination, and relax international travel restrictions will boost the services sector, the bank said.
Kelly Bird, ADB Philippines country director said nearly all indicators pointed to higher growth for the Philippines this year and in 2023.
ADB expects the economy would expand by 6.3 percent in 2023.
However, Bird also said the impact of external factors from geopolitical tensions that may dampen growth globally, including in the country’s key export markets Europe and the United States.
“Policies to build the resilience of micro, small, and medium-sized enterprises, which play a vital role in the country’s economic recovery, should be strengthened to support the sector’s digital transformation, business innovation, and skills development,” Bird said.
The Metro Manila and areas in Luzon, which account for about 70 percent of GDP, shifted to the lowest level of pandemic restrictions last month, as daily Covid-19 cases averaged below 1,000. Businesses and public transport are now allowed to operate at full capacity.
Moreover, the government has reopened the country to fully vaccinated international travelers since February. This should boost tourism and employment in the services sector, which accounts for 60 percent of GDP, according to the ADB report.
“Increased public investment in large, priority infrastructure projects will continue to boost growth, with the government aiming to sustain infrastructure spending at over 5.0 percent of GDP in 2022 from 5.8 percent in 2021,” the report said.
In addition, ADB said the recent upticks in private investment and the passage of policy reform measures to ease rules on foreign equity ownership and lower the minimum paid-up capital of foreign retailers will support economic growth.
Imports of capital goods climbed at a double-digit pace in January and bank lending to businesses posted its biggest annual increase in nearly two years in the same period.
Net inflows of foreign direct investment rebounded by 54.2 percent year-on-year in 2021, with the inflows channeled mostly into manufacturing and utilities sectors.
Inflation is forecast to rise to 4.2 percent in 2022 on pressures from higher global oil and commodity prices due to geopolitical tensions.
In March, the government issued fuel subsidies and discount vouchers to public transport drivers, farmers, and fisherfolk to help them cope with rising fuel and production costs.
Inflation is expected to decelerate to 3.5 percent in 2023 as global commodity prices moderate.