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Economic growth seen to slow to 6.2% in 2023

Fitch Solutions Country Risk and Industry Research expects the Philippines to grow by 6.6% this year and by 6.2% in 2023. — PHILIPPINE STAR/ MICHAEL VARCAS

PHILIPPINE economic growth is expected to slow in 2023, amid higher interest rates.

“We expect GDP (gross domestic product) growth in the Philippines to come in at 6.6% in 2022 and 6.2% in 2023, after the economy grew by 7.8% in the first half of this year,” Fitch Solutions Country Risk and Industry Research Head of Asia Country Risk Raphael Mok said in a webinar on Thursday.

Fitch Solutions maintained its Philippine growth outlook, which is at the low end of the government’s 6.5% to 7.5% full-year target.

Mr. Mok said the Philippine economy benefited from the reopening of borders and election-related spending in the first half.

“However, we believe that these tailwinds will start to fade, while growth headwinds such as higher domestic interest rates and a deteriorating external position intensify, leading to a slowdown in growth over the coming months,” he said.

The Bangko Sentral ng Pilipinas (BSP) has hiked benchmark rates by a total of 225 basis points (bps) so far this year, bringing the policy rate to 4.25%. According to Mr. Mok, this has made the BSP one of the most aggressive central banks in the region.   

“A combination of elevated inflation, foreign exchange weakness and tightening global monetary conditions will prompt the BSP to continue its rate hiking cycle,” Mr. Mok said.   

Inflation zoomed to 6.9% in September, marking the sixth straight month that inflation breached the BSP’s 2-4% target.   

Average inflation quickened to 5.1% in the nine months to September, higher than 4% a year ago. However, it was still below the BSP’s 5.6% forecast for 2022.

As of Thursday, the Philippine peso weakened against the US dollar by 15.56% or P7.94 from its P51 close on Dec. 31, 2021 

In a note dated Oct. 14, Fitch Solutions said it expects the peso to reach an all-time low of P60 per dollar, bringing the average exchange rate to P55-a-dollar by yearend.   

“Weak external demand, combined with strong import growth, will see the current account deficit remain wide, exerting further downside pressures on the peso,” Fitch Solutions said.   

“However, the aggressive hiking cycle undertaken by the BSP will help provide some support for the unit, informing our view that peso weakness has only a little further to run,” it added.   

Mr. Mok said he expects the BSP to hike rates by an additional 75 bps in its remaining policy meetings this year, bringing the policy rate to 5% by yearend. Fitch also expects the BSP to hike by another 25 bps next year, to bring the benchmark rate to 5.25%.

“The Philippines’ external position has also deteriorated significantly over the last couple of months as seen from the widening of the current account deficit to record high,” Mr. Mok said.   

In the first semester, the current account balance ballooned to a $12-billion deficit from the $1.3-billion gap seen in the same period last year.

“This came on the back of weak export growth and surging import bills due to elevated energy prices and high demand for imports of capital goods and raw materials for infrastructure projects,” Mr. Mok said.

“We are now forecasting the current account deficit to widen to 5% of GDP this year, and 4.5% next year, from just 1.5% in 2021,” he added.   

The BSP expects a current account deficit of $20.6 billion (-5% of GDP) for this year. Imports of goods are expected to grow by 20%, while goods exports are seen to increase by 4%. — Keisha B. Ta-asan

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