THE PHILIPPINE economy’s expansion in 2023 and 2024 is expected to be below the government’s 6.5-8% target, the Bangko Sentral ng Pilipinas (BSP) said.
According to the highlights of the Monetary Board’s Sept. 22 meeting, monetary authorities expect the economy to maintain recovery momentum this year.
“GDP (gross domestic product) growth is projected to settle within the DBCC’s (Development Budget Coordination Committee) target of 6.5-7.5% for 2022 and slightly below the 6.5-8% target for 2023 and 2024,” the BSP said.
In the first half of 2022, GDP grew by 7.8%. Third-quarter GDP data will be released on Nov. 10.
Citing the latest Philippine Business Cycle reading which remained in the positive territory for the fifth straight quarter, the BSP said this indicates continued growth momentum.
The BSP also noted mobility indicators have been increasing since May as most areas retained their most relaxed alert levels.
The implementation of full face-to-face classes next month “is expected to lower mobility in households and, consequently, increase mobility to other location categories.”
“The weakening global growth reflects the deterioration in investors’ sentiment, persistent high inflation, and rapid tightening of global financial conditions,” the BSP said, adding that expansion continued in emerging market (EM) economies such as ASEAN (Association of Southeast Asian Nations) countries, India and Brazil.
It also noted broadening inflationary pressures in most EM economies as “weather-related disturbances, supply chain issues, and war-related supply disruptions led to the emergence of second-round effects.”
ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message that accelerating inflation, rising borrowing costs and elevated debt levels will likely cut growth this year and in 2023.
“We expect headwinds to growth to persist, which could in turn dampen growth momentum,” he said.
Inflation quickened to 6.9% in September, marking the sixth straight month that inflation breached the BSP’s 2-4% target.
“Since April, inflation has been higher than the BSP’s target. As consumers dip into their savings and shift spending to essential goods, we will likely see a slowdown in consumer spending,” China Banking Corp. Chief Economist Domini S. Velasquez said.
“Higher interest rates will also force some businesses to put off expansion plans. Moreover, consumers taking out auto and housing loans might also defer their big-ticket spending,” she added.
Ms. Velasquez said she expects 5.8% GDP growth in 2023, well below the government target.
The Monetary Board raised borrowing costs by 50 basis points (bps) last month. The BSP has raised rates by 225 bps since May in an effort to tame inflation and curb the peso’s volatility.
“In deciding to raise the policy rate anew, the Monetary Board has noted that price pressures continue to broaden. The rise in core inflation indicates emerging demand-side pressures on inflation,” the BSP said.
Last month, the central bank also raised its 2022 inflation forecast to 5.6%, from 5.4% previously. It raised its 2023 inflation estimate to 4.1% from 4%, previously. Inflation is expected to ease to 3% in 2024.
“The depreciation of emerging market currencies against the US dollar has coincided with inflationary pressures stemming from elevated global commodity prices,” the central bank said.
The peso closed at P58.75 per dollar on Friday. Year to date, the peso has weakened by P7.75 or 15.2% from its P51 finish on Dec. 31, 2021.
“Despite a weak peso, exporters will experience lackluster demand as advanced economies enter into recessions. The IMF (International Monetary Fund) expects a third of economies to enter into technical recessions in 2023, including major destination countries of our exports, such as the US and those in Europe,” Ms. Velasquez said.
In its latest World Economic Outlook the IMF slashed the global GDP growth outlook to 3.2% from 3.6% this year and to 2.9% from 3.6% for 2023.
The IMF also expects the Philippine economy to expand by 6.5% this year. — Keisha B. Ta-asan