Following a series of destructive calamities that have battered the Philippines and impacted its economy, the World Bank has reduced its 2024 gross domestic product (GDP) growth forecast for the country to 5.9 percent.
“While the baseline growth forecast for 2024 was revised downward to 5.9 percent due to the intensification of climate-related events such as El Nino and La Nina, the medium-term outlook remains strong,” the World Bank said in its Philippine Economic Update report released on Dec. 10.
This revision follows the decision of the Marcos Jr. administration’s economic team to tweak its economic growth target for this year to a range of 6 to 6.5 percent, from the earlier goal of 6.0 percent to 7.0 percent.
Last week, the Development Budget Coordination Committee (DBCC) revised its macroeconomic assumptions for the year after the economy expanded by only 5.2 percent in the third quarter, the slowest pace since the second quarter of 2023.
Department of Finance (DOF) Secretary Ralph G. Recto said in a press briefing last week that a 6.0 percent growth target is the most realistic, as hitting 7.0 percent this year is unlikely.
Despite averaging a 5.8 percent growth rate in the first three quarters of 2024, the DOF noted that the country remains one of Asia's fastest-growing economies.
The World Bank affirmed this, stating that the “Philippines was one of the fastest-growing economies in EAP [East Asia Pacific], with GDP growth increasing to 5.8 percent” in the first nine months of the year.
With this, the Washington-based multilateral lender expects the country’s annual GDP growth to average 6.0 percent from 2024 to 2026, “supported by robust domestic demand, sustained public investment, and a dynamic services sector.”
“Altogether, these are expected to maintain investment rates at relatively high levels, increasing potential output,” it said.
While this aligns with the DBCC’s revised full-year target for 2025, the finance chief said the worst-case scenario for the Philippine economy next year is a slowdown to 6 percent growth.
5.9-percent outlook
Similar to the major factors considered for the succeeding years, “the [5.9 percent] outlook will be anchored on improving conditions for private domestic demand.” Among the major factors are easing inflation, supportive monetary policy, and the government’s commitment to sustained public investment.
The World Bank also expects more Filipinos to be lifted out of poverty, with the poverty rate declining further from 15.5 percent in 2023 to between 13.6 percent and 11.3 percent in 2026.
“This reduction is projected to be supported by robust economic growth, rising real household incomes,” the World Bank said.
However, the World Bank sees that the overall risks are still more likely to be negative, mainly due to “increased uncertainty surrounding the external environment.”
External risks include rising uncertainty over trade measures by major economies, slower growth in China, and escalating geopolitical tensions that could disrupt global trade and commodity markets.
“Domestically, persistent inflationary pressures, delays in monetary policy easing and the implementation of investment reforms could weaken private consumption and investment growth,” the World Bank stressed, adding that these are also risks to poverty alleviation.
Human capital gaps
Beyond the challenges cited above, the country is also in the midst of a human capital crisis. “The Philippines currently faces a significant human capital challenge,” the World Bank said.
The country’s Human Capital Index (HCI) is estimated at 0.52, lower than that of neighboring upper-middle-income countries like Malaysia (0.62), Thailand (0.61), and Indonesia (0.54).
Despite economic progress, the country’s HCI shows that children are not reaching their full potential, with issues like high stunting rates, low early education enrollment, and regional disparities.
“A child born in the Philippines today will achieve only about half of their productive potential by age 18, thereby depriving the Philippines of a significant amount of productivity,” the report said.
The report also said that investing in early childhood development is crucial for sustaining poverty reduction, boosting productivity, and achieving inclusive growth in the Philippines. Human capital includes health, knowledge, skills, and experience, which are key drivers of economic growth and improved living standards.
Early years workers—who play a major role in providing health, nutrition, and development services—face challenges such as staff shortages, insufficient qualifications, and a lack of proper training. These issues are worsened by systemic problems at the local government level, including funding shortages and coordination failures.
“As a result, up to 26 percentage points in human capital potential could be lost due to LGU-specific factors, including governance and service delivery inefficiencies,” the report noted.
The World Bank suggested that “a multifaceted approach is needed to address these challenges, [and this] will require bold policy reforms.”
Such reforms should focus on addressing worker shortages, enhancing capacity, and motivating early years workers through training, better compensation, and performance-based grants, while improving coordination and resource pooling to support better outcomes for Filipino children. (With reports from Ben Arnold de Vera)