Oxford Economics raises Philippine GDP growth forecast to 7%

MANILA, Philippines — United Kingdom-based think tank Oxford Economics has raised its gross domestic product (GDP) growth forecast for the Philippines for this year, but slashed its projection for next year as high inflation is expected to dampen consumption and the slowdown in advanced economies is likely to affect exports and investments.

In an email to The STAR, Oxford Economics assistant economist Makoto Tsuchiya said the think tank expects the Philippines to post seven percent gross domestic product (GDP) growth for this year. This is up from its previous forecast of 6.1 percent.

The Philippine economy posted a stronger-than-expected 7.6 percent growth in the third quarter, bringing the average growth for the January to September period to 7.7 percent.

National Economic and Development Authority Secretary Arsenio Balisacan said earlier this week, the Philippines may surpass the 6.5 to 7.5 percent growth target for this year, given the latest economic performance and indications of a strong growth in the fourth quarter.

Historically, remittances that come into the country in the fourth quarter provide a boost to consumption.

While it upgraded its GDP growth forecast for this year, Oxford Economics now expects the economy to post 3.1 percent growth for next year, lower than its previous forecast of 3.3 percent.

Oxford Economics’ GDP forecast for next year is much lower than the government’s revised six to seven percent growth target.

“We see sequential momentum easing from Q4 (fourth quarter) onwards as external pressures build and the reopening boost fades,” Tsuchiya said.

He said inflation, although expected to peak in the current quarter, would continue to squeeze purchasing power next year.

The country’s headline inflation rate hit a 14-year high of eight percent in November due to food price upticks.

For the January to November period, inflation averaged 5.6 percent.

“The recent slowdown in consumer goods imports supports our view that high inflation is weighing on goods demand. While this partly reflects the shift of spending from goods to services, the initial boost to the services sector following the economic reopening will have been exhausted next year,” Tsuchiya said.

He said looming recessions in the advanced economies would weigh on exports of goods and confidence, and in turn dampen private investment demand.

Tsuchiya said the impact of monetary policy tightening is expected to start to kick in next year, which would be a dampener for both investment and private consumption.

At its last rate-setting meeting for the year last week, the Bangko Sentral ng Pilipinas (BSP) delivered a 50-basis- point (bp) rate hike, bringing the key policy rate to 5.5 percent.

The BSP’s move is in line with that of the US Federal Reserve, which raised its rate by the same amount.

Tsuchiya expects inflation to remain above seven percent in the first quarter next year.

“Our US team assumes a 25 bps hike by the US Fed in Q1 (first quarter) 2023 will be the last in the current tightening cycle. As such, we expect the BSP to move by the same amount in Q1 before holding the rate steady,” he said.