Nomura sees slower 2023 growth for Philippines

MANILA, Philippines — Japan’s Nomura sees a slower 4.3 percent economic growth for the Philippines for 2023 from the projected 6.7 percent this year.

In a report, Nomura said the Philippine economy was not yet out of the woods as there is continued vulnerability from weak external demand and tech downturn.

The latest forecasts are better than the previous projections of 6.3 percent for 2022 and 3.6 percent for 2023 set in August.

However, these are lower than the 6.5 to 7.5 percent expansion for 2022 and 6.5 to seven percent for 2023 set by the Cabinet-level Development Budget Coordination Committee (DBCC).

“Amid a global growth downturn, we do not see domestic demand being as resilient as in the past, and hence overall economic performance is likely to weaken significantly, particularly in the first half of 2023,” Nomura said.

Nomura expects the Philippines’ export performance to drop due to recessions in Europe and the US.

It added that the global tech downturn also poses a major headwind as electronics exports account for nearly 60 percent of total merchandise exports.

“Importantly, we expect private consumption growth to ease to five percent from 8.1 percent as pent-up demand fades and rising inflation hurts household purchasing power. Government spending after an election year also tends to decline significantly,” it said.

Nomura said the new government’s push for public infrastructure projects would likely boost investment spending, but surging interest rates could hamper private sector capital expenditures, and much uncertainty in the global economic environment would likely weigh on business sentiment.

Furthermore, capacity utilization in the manufacturing sector has remained relatively low at 71.5 percent, which will likely inhibit more investment for expansion.

Inventory restocking has also been extraordinarily high in 2022 and this should reverse during a downturn.

Nomura said a wide current account deficit and still-high inflation suggest domestic resilience to a global downturn may be weaker than in previous cycles.

“The vulnerability from tightening global financial conditions may be easing as the current account deficit is moderating from record highs in 2023. The BSP has also been the most aggressive in the region in raising policy rates, and we see more hikes until the first quarter of 2023,” it said.

The Bangko Sentral ng Pilipinas (BSP) has raised key policy rates by 300 basis points, bringing the overnight reverse repurchase rate to a 14-year high of five percent from an all-time low of two percent to tame inflation and stabilize the peso.

It is widely expected to deliver another rate hike during its last rate-setting meeting for the year scheduled on Dec. 15 despite pronouncements made by the US Federal Reserve that jumbo rate hikes are over.

“BSP remains concerned about currency depreciation and headline inflation will likely stay above its target for a while. The upshot is that growth will slow significantly, as the usual domestic resilience to an export-led downturn is likely lower than in the past,” Nomura said.

The Japanese investment bank sees Philippine inflation accelerating to 5.8 percent this year before easing to 4.2 percent in 2023 and to 3.1 percent in 2024.

Inflation averaged 5.6 percent from January to November this year, way above the BSP’s two to four percent target, after accelerating further to a 14-year high of eight percent last month from 7.7 percent in October.