MANILA, PHILIPPINES (6 April 2022) — The Philippines’ economic recovery is expected to gain traction this year and the next, underpinned by rising domestic investment and consumption as pandemic restrictions eased, allowing for more manufacturing and construction activities, according to a new report released by the Asian Development Bank (ADB) today.
The Asian Development Outlook (ADO) 2022, ADB’s flagship economic publication, forecasts the Philippine economy to grow by 6.0% in 2022, rising further by 6.3% in 2023. Government measures issued last month to reopen the economy, lift mobility restrictions, expand coronavirus disease (COVID-19) vaccination, and relax international travel restrictions will boost the services sector.
“Nearly all indicators point to higher growth for the Philippines this year and in 2023, barring the impact of external factors from geopolitical tensions that may dampen growth globally, including in the country’s key export markets Europe and the United States,” said ADB Philippines Country Director Kelly Bird.
“Policies to build the resilience of micro, small, and medium-sized enterprises (MSMEs), which play a vital role in the country’s economic recovery, should be strengthened to support the sector’s digital transformation, business innovation, and skills development,” Mr. Bird added. ADB is currently assisting the government to provide employer-led skills trainings to selected sectors to upgrade MSME workers’ competencies under the Skills Up Net Philippines program.
The capital Metro Manila and areas on the main Luzon island, which account for about 70% of gross domestic product (GDP), shifted to the lowest level of pandemic restrictions in March, as daily COVID-19 cases averaged below 1,000. Businesses and public transport are now allowed to operate at full capacity. The government has reopened the country to fully vaccinated international travelers since February. This should boost tourism and employment in the services sector, which accounts for 60% of GDP, according to the report.
Increased public investment in large, priority infrastructure projects will continue to boost growth, with the government aiming to sustain infrastructure spending at over 5.0% of GDP in 2022 from 5.8% in 2021, the report said.
Recent upticks in private investment and the passage of policy reform measures to ease rules on foreign equity ownership and lower the minimum paid-up capital of foreign retailers will support economic growth. Imports of capital goods climbed at a double-digit pace in January 2022 and bank lending to businesses posted its biggest annual increase in nearly 2 years in the same period. Net inflows of foreign direct investment rebounded by 54.2% year-on-year in 2021, with the inflows channeled mostly into manufacturing and utilities sectors.
Inflation is forecast to rise to 4.2% in 2022 on pressures from higher global oil and commodity prices due to geopolitical tensions. In March, the government issued fuel subsidies and discount vouchers to public transport drivers, farmers, and fisherfolk to help them cope with rising fuel and production costs. Inflation is expected to decelerate to 3.5% in 2023 as global commodity prices moderate.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.