Philippines seen to grow by 6.8% this year

MANILA, Philippines — New York-based GlobalSource Partners now expects the Philippines to book faster economic growth this year after emerging strongly from the pandemic-induced recession.

In a research note titled “Here Comes the Son,” GlobalSource country analysts Romeo Bernardo and Christine Tang said the think tank now expects the Philippines to register a gross domestic product (GDP) growth of 6.8 percent this year on easing COVID mobility restrictions.

This is faster than its original forecast of 5.5 percent, but slightly below the revised seven to eight percent target set by the Cabinet-level Development Budget Coordination Committee (DBCC).

“We expect economic growth this year to reach 6.8 percent, helped by receding pandemic fears and improved mobility, expectations of a broader recovery in economic activity and one-off election spending,” Bernardo and Tang said.

The Philippines exited the recession that stretched five quarters with a GDP growth of 5.7 percent last year, after shrinking by 9.6 percent in 2020 as the economy stalled due to strict COVID-19 quarantine and lockdown protocols.

The growth was sustained with a stronger-than-expected 8.3 percent GDP expansion in the first quarter, faster than the 7.8 percent growth in the fourth quarter, and reversing the 3.8 percent in the first quarter of last year.

For 2023, the New York-based think tank retained its GDP growth forecast at 5.5 percent, lower than the six to seven percent target penned by Philippine economic managers.

“We are keeping our 2023 5.5 percent growth outlook for now, given the many uncertainties here and abroad, and pending clearer demonstration of the executive’s ability to build on and implement recent reforms,” Bernardo and Tang added.

GlobalSource said that the incoming administration of President-elect Ferdinand “Bongbong” Marcos Jr. and Vice President-elect Sara Duterte-Carpio has handed the business community what it wanted, a knowledgeable and experienced economic team that can hit the ground running.

“This is enough for even those strongly opposed to the son of former dictator Ferdinand Marcos to give the president-elect the benefit of the doubt,” the analysts said.

The economic team of the incoming administration includes outgoing Bangko Sentral ng Pilipinas Governor Benjamin Diokno to the Department of Finance (DOF), Monetary Board member Felipe Medalla as central bank governor, outgoing BSP assistant governor Amenah Pangandaman as Secretary of the Department of Budget and Management (DBM), and Philippine Competition Commission chairman Arsenio Balisacan to the National Economic and Development Authority (NEDA).

According to the think tank, a challenging global economic and financial environment awaits the new government amid the impact of the Russia – Ukraine war, the hawkish US Federal Reserve, the supply disruptions caused by the strict COVID-19 lockdown in China, among others.

In the Philippines, the BSP started its own interest rate liftoff after the Monetary Board hiked interest rates by 25 basis points – the first time in more than three years or since November 2018.

Monetary authorities slashed interest rates by 275 basis points between 2019 and 2020 to spur economic activity in the country.

This included the aggressive 200 basis points rate cuts in 2020 that brought the benchmark interest rate to an all-time low of two percent, as part of COVID-19 response measures to keep the Philippine economy afloat.

After keeping a loose and expansionary monetary policy stance to allow the economic rebound to gain more traction, the sustained growth allowed the BSP to finally raise interest rates last May 19 to curb rising inflationary expectations.

Bernardo and Tang said that the policy normalization being undertaken by the central bank gives the incoming Marcos administration reduced macroeconomic policy headroom.