Philippine growth seen to slow to 5% amid tailwinds

MANILA, Philippines — The gross domestic product (GDP) growth of the Philippines will significantly slow to five percent next year from the projected 7.2 percent this year as tailwinds supporting the post-pandemic recovery have matured, ANZ Research said.

“Factors that supported the rebound in domestic demand have reached their point of maximum strength and should moderate from here on. The recovery in the labor market has matured whereas remittances inflows are unlikely to increase further as global growth eases,” ANZ said in its latest Asia Economic Outlook Q1 2023.

ANZ believes private consumption will slow to 3.7 percent in 2023 from the projected 8.2 percent this year, while public consumption would contract by 0.6 percent from a growth of 5.4 percent this year.

“The financial position of local households is also on the backfoot, with rising debt liabilities and insufficient savings,” ANZ said.

It pointed out that only 27 percent of households are reported to still have savings in Q3 2022 compared to 38 percent at the start of the COVID-19 pandemic.

“Overall consumer sentiment is somber, with low appetite for purchases of big-ticket items such as consumer durables and motor vehicles,” it said.

Investments growth is also seen to decline to three percent next year from 11 percent this year.

“By contrast, corporates’ investment intentions have climbed, but are probably also peaking. Negative real rates had encouraged corporates to embark on new projects, but sentiment may weaken when real rates return to positive territory, most likely by Q2 2023, according to our estimates,” it said.

According to ANZ, the impact of monetary policy tightening would become more prominent over the coming months as the Bangko Sentral ng Pilipinas (BSP) estimates that full policy transmission to lending rates entails a lag of around two quarters.

“In our view, the hitherto limited transmission of monetary policy reflects the high levels of excess reserves in the banking system,” it said.

The BSP Monetary Board raised key policy rates by 350 basis points this year, bringing the overnight reverse repurchase rate to a 14-year high of 5.5 percent from an all-time low of two percent to tame inflation and stabilize the peso.

ANZ sees inflation easing to 4.3 percent in 2023 from 5.8 percent this year, still above the central bank’s two to four percent target range.

“The victory over inflation will unfortunately be a slow one. Although price pressures have probably peaked, the path to the two to four percent official target range will be gradual. We expect headline inflation to fall below four only in H2 2023,” ANZ said.

In terms of trade, ANZ said exports growth would ease to 2.3 percent from 9.9 percent, while the increase in imports would plunge to only one percent from 14.9 percent.

“The growth environment will be further challenged by weaker exports and a relatively neutral fiscal stance. The government’s Build Build Build program will only have measured contributions towards economic growth in 2023, as the annual budget allocation towards infrastructure programs will be almost unchanged at P1.2 trillion compared to this year,” ANZ said.

ANZ explained that an expected dip in domestic demand, coupled with further price decline in commodities, would help reduce imports, which jumped 24.6 percent year-on-year over the first nine months of the year.

“We are projecting a smaller deficit in the goods trade in 2023 despite potentially lower demand for Philippine exports,” It said.