Philippines: Sustained uptick in inflation to cut growth by 0.6% in 2023

MANILA, Philippines — The National Economic and Development Authority (NEDA) expects the continued uptick in inflation this year and in 2023 to cut the country’s economic growth by 0.6 percent next year.

“We are particularly concerned about higher inflation. Our analysis shows that sustained increases in inflation in 2022 and 2023 will cause a slowdown in our economic growth, translating into a GDP (gross domestic product) level lower by 0.6 percent in 2023 than its expected level had there been no sustained inflation shock,” NEDA Secretary Arsenio Balisacan said in a Palace briefing yesterday.

The government set a GDP growth target of 6.5 percent to eight percent for next year.

For this year, the government is aiming for a 6.5 to 7.5 percent GDP growth.

Inflation zoomed to a four-year high of 6.9 percent in September from 6.3 percent in August, bringing the average for the nine-month period to 5.1 percent.

Balisacan said inflation has remained persistently high globally, including in the Philippines, due to supply constraints in essential commodities and inputs in the food value chain given the ongoing Russia-Ukraine conflict, as well as the natural calamities that have dampened agricultural output.

The US Federal Reserve has engaged in aggressive monetary tightening and expressed willingness to continue to do so to rein in inflation, even at the expense of a recession, with higher interest rates slowing down spending and demand for goods and services.

Amid these developments, Balisacan said recessions in the Philippines’ trading partners, such as the US, European Union, and China would lead to weaker demand for exports, investments, and tourism.

“As a small, open economy, the Philippines cannot escape the effects of these global headwinds,” Balisacan said.

He said the government, however, expects the increase in inflation to be temporary.

“It is expected to slow down and return to the medium-term target of two to four percent,” he said.

ING Bank Manila senior economist Nicholas Mapa said in an email yesterday rising inflation would weigh on consumption, as the purchasing power is watered down by rising costs.

“Meanwhile, increasing borrowing rates (after Bangko Sentral ng Pilipinas’ rate hikes) will dampen bank lending growth, capping gains for capital formation,” he said.

He said ING Bank has lowered its GDP forecast for this year to 5.9 percent.

Last month, ING Bank slashed its GDP growth projection to 6.1 percent from 6.5 percent.

For next year, ING Bank expects the economy’s growth to slow to 4.4 percent.

Mindful of the challenges, Balisacan said the government would continue to monitor and manage the risks to the country’s growth.

“The intention is to address this inflation particularly, by providing assistance to the most vulnerable and poverty groups by continuing the subsidy programs that are for example, currently extended by DSWD (Department of Social Welfare and Development), our cash subsidy programs, our assistance to farmers and fisherfolk, to our drivers and so on,” he said.

He also said the government has monetary tools it can deploy including raising the interest rate to tame inflation, and market intervention to address the peso depreciation.