By Justine Irish D. Tabile, Senior Reporter
THE PHILIPPINE economy’s recovery next year will hinge on a rebound in public investment, although prolonged energy price shocks and climate-related disruptions such as the “Super El Niño” could derail growth, the World Bank said.
In an exclusive interview with BusinessWorld, World Bank Senior Country Economist for the Philippines Jaffar Al-Rikabi said the lender expects public investment to begin recovering in the fourth quarter, which could help restore business and household confidence, as well as stimulate private investment.
“Our outlook depends importantly on whether investment regains momentum and whether external shocks remain manageable,” he said.
The World Bank projects the Philippine economy to grow by 5.2% in 2027 and 5.5% in 2028, after slowing to an expected 3.7% this year. The recovery is expected to be supported by a rebound in public investment and moderating inflation.
“We have this Philippine specific shock, which is around public investment,” Mr. Al-Rikabi said.
He noted that the slowdown in public investment had significantly affected economic growth this year, but the World Bank expects the recovery to begin in the fourth quarter.
The Philippine economy expanded by 2.6% in the first half, after muted household consumption and a contraction in gross fixed capital formation.
“We think as the public investment comes online that can hopefully crowd in and bring in both private investment but also boost confidence more generally in the economy,” he said.
Mr. Al-Rikabi identified three main downside risks to the Philippine growth outlook: sustained external uncertainty and energy price shocks, climate-related disruptions that prove more severe than expected, and a failure of investment activity to recover as anticipated.
“Our baseline recovery rests on the assumptions that we should see moderating inflation,” he said, adding that improving business and household confidence, alongside stronger public and private investment, would also be crucial to the recovery.
Inflation accelerated to 7.2% in September from 6.1% in August, ending four straight months of easing. This brought the nine-month average to 5.4%, with inflation remaining above the Bangko Sentral ng Pilipinas’ (BSP) 3% target for the seventh consecutive month.
For this year, the World Bank expects inflation to average 5.8% amid continued pressure from elevated energy prices.
“Another source of downside risk we highlight is related to climate-related disruption if these prove to be more severe than our baseline expectations,” Mr. Al-Rikabi said.
This comes as the current El Niño weather pattern is forecast to become the strongest ever, bringing drought, extreme heat and crop losses.
The Philippine Atmospheric, Geophysical and Astronomical Services Administration has said the El Niño could become “very strong” between now until December and persist through the first half of 2027.
World Bank Chief Economist for Asia Franziska Ohnsorge said the lender had taken El Niño into account to some extent in its baseline projections.
“We already have taken (this) into account to some extent in our baseline, but it could be much worse than we expect,” she told BusinessWorld.
Looking at past severe El Niño events, Ms. Ohnsorge said the weather pattern’s effect on gross domestic product and inflation were not statistically significant.
However, she said past severe El Niño events were associated with statistically significant declines in crop and fisheries production.
“What governments can do, of course, it can get ready… That includes preparing for big floods, that includes preparing for droughts,” Ms. Ohnsorge said.
“But often the burden of the adjustment falls on the household, at least the immediate adjustment, falls on the individual household and the individual firm,” she added.
As of Oct. 5, 106 cities and municipalities in Isabela, Cagayan, Camarines Norte, Dinagat Islands, and Agusan del Sur, have already been placed under a state of calamity due to severe drought and dry conditions due to the El Niño.
The Agriculture department reported that 223,214 farmers in 14 regions have already been affected by El Niño, with agricultural damage reaching P6.87 billion as of Sept. 26.
Meanwhile, Mr. Al-Rikabi said public investment could help bring more climate-resilient infrastructure projects online.
“One of the reasons why we want to see public investment coming online is that there are priority projects related to climate resilience infrastructure,” said Mr. Al-Rikabi.
“So, the ones that have been cleared, reviewed, assessed as being the right projects in the right areas, being screened for efficient use of resources. We want to see those coming online as soon as possible,” he added.
Mr. Al-Rikabi also said social protection programs such as the Pantawid Pamilyang Pilipino Program (4Ps) should target poor and near-poor households during shocks.
He said about 27.7% of Filipinos are near poor, meaning they are one shock away from falling into poverty. This group has a 10% chance of falling into poverty, he said.
“You’d want social protection to target the poor and near poor through programs like the 4Ps, which is exactly what the government has done as a response to the energy shock,” he said.
“So, it’s in a good place, we think, to react if necessary, if the El Nino proves to be far more damaging than our baseline assumptions,” he added.