Manila-based Asian Development Bank (ADB) has downgraded its growth forecast for the Philippines to 5.7 percent this year, lower compared to its previous estimate of six percent five months ago, amid inflation worries and other global factors that could slow down growth.

“Downside risks to the outlook are likely to come from global headwinds such as geopolitical tensions and a sharper-than-expected slowdown in major advanced economies,” said ADB on Wednesday, Sept. 20, citing the latest results of its Asian Development Outlook (ADO) September 2023 report.

For next year, ADB expects economic activity to perk up as price pressures decelerate, and did not change its 6.2 percent forecast it announced back in April, on the back of household consumption and infrastructure as well as as social services’ public spending.

ADB’s growth projections for 2023 of 5.7 percent is lower than the government’s target of six percent to seven percent. Its 2024 growth estimate is also below the state’s target of 6.5 percent to eight percent.

Meanwhile, the multilateral agency’s inflation forecasts for the Philippines is also maintained at 6.2 percent for 2023 and four percent for 2024. Both projections are higher compared to Bangko Sentral ng Pilipinas’ (BSP) own forecast of 5.6 percent for 2023 and 3.4 percent in 2024.

ADB said inflation risks include: possible severe weather disturbances including the El Niño dry weather phenomenon; pressures from elevated global commodity prices; and second round effects from higher transport fares and minimum wage hikes could slow the pace of inflation easing.

According to ADB Country Director for the Philippines, Pavit Ramachandran, the country’s growth outlook “remains strong despite an expected moderation in 2023.”

“Public investment and private spending fueled by low unemployment rate, sustained increase in remittances from Filipinos overseas, and buoyant services including tourism will support growth” while the government’s “large infrastructure projects should further stimulate consumption, boost jobs, and spur more investment,” he said Wednesday.

ADB noted that the government did spend on infrastructure development in the first six months, which reached 5.3 percent of gross domestic product (GDP) during the period.

It expects the government to continue to do so, especially investments on several big-ticket items. In fact ADB is financing of these, including “transformative projects” such as the Malolos-Clark Railway Project, South Commuter Railway Project, Improving Growth Corridors in Mindanao Road Sector Project, and Integrated Flood Resilience and Adaptation Project – Phase 1.

ADB also noted that several factors could lower current account shortfall and “offset weak merchandise exports” such as the higher tourism-related receipts, sustained remittances, and strong service exports particularly from business process outsourcing.

Based on the September 2023 ADO report, growth in Asia and the Pacific should still be “solid” despite risks such as China’s weak property sector which could impact on the regional growth outlook.

For this year, ADB lowered its growth forecast for the region to 4.7 percent, down from the previous 4.8 percent projection. In 2024, the growth forecast remains at 4.8 percent.

“Developing Asia continues growing robustly, and inflation pressures are receding,” said ADB Chief Economist Albert Park.

In lowering its growth outlook, the ADB cited the “weakness” in China’s property sector as well as “high global interest rates (which) have increased the risk of financial instability.

“Sporadic supply disruptions from the continuing Russian invasion of Ukraine, export restrictions, and the increased risk of droughts and floods caused by El Niño could once again trigger rising food prices and challenge food security,” it added.

Inflation in developing Asia, meantime, is expected to drop to 3.6 percent this year from 4.4 percent in 2022. For 2024, inflation is also seen to further decline to 3.5 percent.

Also, the report said that a faster-than-expected decline in US inflation “could boost global prospects” along with an expected robust domestic demand to support the region’s growth prospects, the reopening of China, rebounding tourism, resilient service sectors, healthy money transfers into the region, and stable financial conditions are all helping support economic activity.

According to Park, “some central banks in the region have started to lower interest rates, which will help boost growth. Still, governments need to be vigilant against the many risks that the region faces. Property market weakness in the PRC (People’s Republic of China) remains a concern. Extreme weather events due to climate change and the effects of El Niño remind us that economies must work together to build resilience and protect the most vulnerable.”