The Asian Development Bank (ADB) said the rate of increase in consumer prices in the country would move at a much faster pace this year owing to acceleration of global energy and commodity prices.
Based on the Asian Development Outlook 2022 Update on Wednesday, Sept. 21, the Manila-based multilateral institution said inflation outlook for the Philippines was raised to 5.3 percent from a July forecast of 4.9 percent and 4.2 percent in April.
ADB’s full-year inflation estimate is slightly below the Bangko Sentral ng Pilipinas’ forecast of 5.4 percent, but way above the government’s target range of 2.0 percent to 4.0 percent.
Higher inflation outlook was “underpinned by sharp upward shocks to global energy and commodity prices,” ADB said.
Moreover, ADB added that “the negative impact of natural disasters on domestic agricultural supply will likely lead to higher food prices until the end of the year.”
Meanwhile, ADB’s inflation forecast for next year was kept at 4.3 percent as it expects “the return to steady economic growth will keep inflation relatively stable, and with energy prices likely to decelerate.”
In a related development, ADB said it expects the strong rebound in domestic demand plus the easing of Covid-19 mobility restrictions in the country will support robust growth for the economy in 2022.
“The Philippines’ gross domestic product (GDP) will grow 6.5 percent in 2022, the same as forecast in July but up from the bank’s April forecast of 6.0 percent,” ADB said.
The growth projection for 2023 was also maintained at 6.3 percent as monetary policy tightening and accelerating inflation both crimp domestic demand.
“The normalization of socioeconomic activity will usher the Philippine economy to a steady, pre-pandemic pace of expansion,” Kelly Bird, ADB Philippines country director said in a statement.
“The recovery in tourism and private investments, coupled with sustained public spending on large infrastructure projects and remittances from overseas Filipinos, will bolster the country’s economic recovery this year,” he added.
However, according to the ADB report, downside risks to the growth outlook could come from a sharper slowdown in major advanced economies, heightened geopolitical tensions, and possible sustained elevated global commodity prices due to the Russian invasion of Ukraine.
Spending on recreation, travel, and restaurants bounced back in the first half of 2022, with household consumption rising 9.3 percent, from 0.9 percent in the first semester of 2021. It was the most significant contributor to GDP growth in the period.
Services output grew 8.7 percent in the first half, with a broad-based expansion noted across the sector.
This contributed to a steady increase in overall employment, with an additional 5.7 million jobs generated from July 2021 to July 2022, two-thirds of which were in services, mainly in wholesale and retail trade.
Infrastructure upgrades, including for bridges, expressways, ports, and railroads, continue to be one of the top priorities of the government.
Public spending on infrastructure this year and next is planned at up to 6.0 percent of GDP to help improve the country’s business environment and competitiveness.