Economy to grow by 6% despite risks from Ukraine war, ADB says

A silhouette of the skyline is pictured at sunset in Quezon City, Metro Manila, Philippines, Nov. 27, 2020. — REUTERS

THE ASIAN Development Bank (ADB) maintained its Philippine growth forecast for 2022, as domestic investment and consumption continue to improve amid looser lockdown restrictions, but it warned of risks from the Russia-Ukraine war.

In the Asian Development Outlook 2022, the multilateral lender said the country’s gross domestic product (GDP) is projected to grow by 6% this year, unchanged from the forecast given in December. It expects GDP to expand by 6.3% in 2023.

However, these projections are below the economic managers’ 7-9% target for 2022, and 6-7% goal for 2023. In 2021, the Philippine economy grew by 5.6%.

“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,” ADB Philippines Country Director Kelly Bird said in a statement.

The government has moved to reopen the economy by loosening mobility curbs, ramping up coronavirus disease 2019 (COVID-19) vaccination, and easing international travel restrictions. Consumer and business confidence is growing as COVID-19 infections continue to decline.

At the Asian Impact Webinar on Wednesday, ADB Macroeconomic Research Division Director Abdul Abiad noted that there’s more economic activity as the government relaxed restrictions, which allowed domestic investment and consumption to rebound.

Mr. Abiad said the Philippine GDP outlook was unchanged due to the country’s relatively small trade and financial links to Russia and Ukraine.

“In terms of direct channels of impact, it’s not a lot. It will work primarily through inflation,” he said.

The ongoing Russia-Ukraine war is the biggest risk to the growth outlook, the ADB said, adding that “inflation could surge higher with second-round impacts, such as tightening credit markets and higher interest rates.”

The ADB expects inflation to quicken to 4.2% this year due to soaring global oil and commodity prices. Inflation is projected to decelerate to 3.5% in 2023.

ADB Southeast Asia Senior Regional Cooperation Officer Dulce Zara said inflation may further accelerate this year, depending on the extent of the impact of the ongoing geopolitical conflict.

“It will affect inflation in the country simply because of the rising cost of oil. We were looking at $70 per barrel in 2021, but now it’s above $100 per barrel, and that has a huge impact on the budget of the government…. The impact is affecting the most vulnerable groups, so the government has to put into place targeted fiscal response for those vulnerable groups,” she said.

The multilateral bank said the current account deficit is expected to widen to 3.2% of GDP this year, and narrow to 3.1% in 2023, as quicker economic growth boosts imports.

“Higher oil prices this year will also drive up import costs. Growth in merchandise exports will be moderate compared with imports. Rising remittances and services exports, including business processing outsourcing and tourism receipts, will help trim the current account deficit,” the ADB said.

SLOWER GROWTH IN ASIAMeanwhile, growth in developing Asia will likely be slower this year than previously thought, the ADB said, as the war in Ukraine is expected to derail economic recovery in the region still reeling from the COVID-19 pandemic.

The bloc’s combined economy, which includes China and India, is projected to expand 5.2% this year, the ADB said, down slightly from the 5.3% forecast in December, and sharply lower than the previous year’s 6.9% growth.

For 2023, the region is forecast to grow by 5.3%.

“The Russian invasion of Ukraine has severely disrupted the outlook for developing Asia which is still contending with COVID-19,” the ADB said in its Asian Development Outlook report.

The Manila-based multilateral lender said other factors could also cloud the region’s growth outlook, including ongoing increases in commodity prices, heightened financial stability risks that may stem from aggressive interest rate hikes in the United States, and the emergence of deadlier COVID-19 variants.

China’s economy will probably grow by 5% this year, the agency said, slower than its December projection, and much weaker than its 8.1% expansion in 2021, as COVID-19 outbreaks disrupt economic activities and chill consumer spending.

Except for South Asia, all sub-regions were expected to post slower-than-expected growth this year. The ADB now sees East Asia and Southeast Asia growing by 4.7% and 4.9% respectively, instead of 5% and 5.1%.

With the sharper-than-expected increases in commodity prices, the ADB raised its inflation forecast for the region to 3.7% in 2022 from its earlier forecast of 2.7%, before easing to 3.1% in 2023. — Tobias Jared Tomas with Reuters