The World Bank raised its gross domestic product (GDP) outlook for the Philippines to 7.2 percent this year from an earlier projection of 6.5 percent in September.

The Washington-based multilateral institution said Tuesday, Dec. 6, that the upward revision was driven by “robust domestic activity” as well as the stronger-than-expected third-quarter economic performance.

It noted that the Philippine economy is expected to expand at a much faster pace than initially estimated this year, but the growth will be tempered next year given the unfavorable global environment.

“Strong domestic demand is driving growth, which is more than compensating for the unfavorable global environment,” World Bank said.

“The economic reopening this year is unleashing pent-up demand, contributing to jobs and incomes recovery, and benefitting the contact-intensive services sector,” the bank added.

The economy grew 7.6 percent in the third quarter, exceeding market consensus projection of 6.3 percent. This brought the nine-month average at 7.7 percent, above the government’s target of 6.5 percent to 7.5 percent.

However, World Bank said 2023 will be a different story as unfavorable developments overseas are seen to spill into the domestic economy and temper the growth.

For this reason, World Bank projects that the economy would grow slower at 5.4 percent.

Next year growth outlook is “premised on the fading of pent-up demand, alongside elevated inflation and higher interest rate environment that will temper domestic demand,” World Bank said.

According to the bank, the higher interest rates will also lead to lower private credit and subdued investments at a critical time when public investment growth is expected to slow in line with fiscal consolidation and a programmed decline of public infrastructure.

The government slashed its infrastructure spending from 5.5 percent of GDP in 2022 to 5.0 percent in 2023 to 2025.

“As global growth is expected to decelerate next year, external demand from advanced economies, which are key buyers of Philippines merchandise exports, will be subdued,” World Bank said.

“Medium-term growth will gradually approach its potential rate at 5.7 percent as the output gap closes in line with the cyclical recovery,” it added.

The Development Budget Coordination Committee, an inter-agency body tasked to set the government’s macroeconomic assumptions, lowered on Monday its 2023 growth target to six percent to seven percent from previous 6.5 percent to 8.0 percent.

Budget Secretary Amenah F. Pangandaman, who also chairs the DBCC, said the revision was due to multiple headwinds weighing on the country’s economic growth.