Philippines: Economy may grow below target this year as global concerns linger

MANILA, Philippines —  The expansion of the Philippine economy is expected to hit the brakes this year, with growth likely to fall below government assumptions on global uncertainties despite easing commodity prices.

In a briefing yesterday, Sun Life Investment Management and Trust Corp. (SLIMTC) said the overall economic view remains positive, but headwinds continue to linger amid global recessionary fears.

SLIMTC president and chief investment officer Mike Enriquez said gross domestic product (GDP) may grow by 5.4 percent this year, a significant slowdown from the 7.6 percent expansion in 2022.

This also falls below the six to seven percent assumption of the Cabinet-level Development Budget Coordination Committee (DBCC).

“This is mainly due to base effects. Consumer growth is very robust, especially for non-food spending, but there are some headwinds due to global recessionary fears,” Enriquez said.

“We expect continued growth in consumption and capital outlay even though global growth slowdown is expected to dampen business and consumer sentiment.”

Enriquez said there is a need to be cautious of the recession fear in the US, which could trickle down on consumption as an effect.

Nonetheless, Enriquez noted that the reopening story last year would continue, further supporting services and tourism.

Likewise, SLIMTC is also seeing a continued slowdown in inflation following a stable slowdown over the past months, coupled with commodity prices coming off from highs last year.

From 5.8 percent last year, Enriquez said inflation should taper off to five percent this 2023.

This is significantly more optimistic than the DBCC’s five to seven percent assumption for the year.

“But weather related events, such as a weak El Niño is a risk, but early importation of rice, grains and livestock could mitigate this,” Enriquez said.

“Others include persistent inflation and geopolitical risks that could result in supply chain issues and once again higher commodity prices,” he said.

As inflation is expected to further cool down, the Bangko Sentral ng Pilipinas (BSP) is seen to continue pausing and holding key interest rates.

“We now have the BSP at an inflection point, the rate pause is expected to remain until the fourth quarter, and at which time BSP will likely look to cut rates,” Enriquez said.

Two weeks ago, the central bank kept the overnight reverse repurchase facility at 6.25 percent.

This is BSP’s first pause after raising key policy rates nine times since May last year by a cumulative 425 basis points.