The Asian Development Bank (ADB) raised this year’s growth forecast for the Philippines on stronger-than-expected domestic demand, but it expects the expansion to move at a much slower pace next year due to financial tightening and global headwinds.

Based on the latest supplement to the Asian Development Outlook released on Wednesday, Dec. 14, the Manila-based multilateral institution revised its 2022 gross domestic product (GDP) forecast for the country to 7.5 percent. The new GDP outlook is better than the 6.5 percent released in September.

“The Philippine economy is forecast to grow faster than previously expected in 2022 supported by stronger-than-expected domestic demand spurred by rising employment and a recovery in tourism after the country lifted Covid-19 mobility restrictions,” ADB said.

The bank’s new growth outlook settles at the lower end of the Marcos administration target band of 6.5 percent to 7.5 percent for the year. The country grew 7.7 percent in the first three quarters.

According to the ADB, growth in the Philippines will be at the high end of the range as compared with those of its Southeast Asian neighbors.

Likewise, ADB raised the 2022 growth forecast for the region to 5.5 percent from the previous 5.1 percent despite the overall dimmed outlook for Asia and the Pacific. Regional GDP growth, however, is expected to slow to 4.7 percent in 2023.

Kelly Bird, ADB Philippines country director said the local economy has shown strong underlying growth momentum and resilience in 2022, which is expected to continue in next year.

However, Bird said there are downside risks to growth in 2023, including inflation stickiness, further increases in interest rates, and a sharper than expected slowdown in GDP growth in advanced countries.

For this reason, the ADB lowered its growth projection from 6.3 percent to 6.0 percent in 2023.

“Upward pressures on commodity prices, including oil which will weigh heavily on the predominantly oil-importing Philippines, are expected to be sustained in 2023 with continued uncertainty arising from the Russian invasion of Ukraine,” ADB said.

Inflation is expected to quicken to 5.7 percent this year from the previous forecast of 5.3 percent before slowing in 2023, with the forecast for next year maintained at 4.3 percent.

The Marcos administration has said that the government would continue to invest on its flagship infrastructure projects to spur employment and lay the foundations for a more vibrant and resilient economy.