Moody’s hikes Philippines growth outlook for 2022

MANILA, Philippines— The Philippine economy may post a faster growth of above seven percent this year before slowing down next year due to external headwinds and internal challenges, according to  Moody’s Analytics.

Sonia Zhu, associate economist at Moody’s Analytics, raised the Philippines’ gross domestic product (GDP) growth outlook for this year to 7.4 percent from the original target of 6.7 percent.

The economy expanded by 7.7 percent from January to September, slightly faster than the 6.5 to 7.5 percent target set by the Cabinet-level Development Budget Coordination Committee (DBCC).

However, Zhu said the expansion is likely to slow down to 6.4 percent next year amid the risk of recession in the US and the lack of confidence in China’s recovery.

“The Philippines’ 2023 economic outlook is sanguine, but we expect growth to slow to 6.4 percent from an estimated 7.4 percent in 2022 given external headwinds and internal challenges,” Zhu said.

The projected GDP growth of Moody’s Analytics is well within the six to seven percent target penned by   economic managers.

The economist also pointed out that the persistently high inflation would dampen domestic consumption.

Inflation averaged 5.6 percent after soaring to a 14-year high of eight percent in November from 7.7 percent in October. It is expected to average 5.8 percent this year, well above the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

“The biggest risk facing domestic demand is elevated inflation,” Zhu said.

The research arm of Moody’s Analytics sees inflation peaking in early 2023 and then decelerate due to easing energy prices and the impact of the aggressive rate hikes delivered by the BSP.

The BSP raised key policy rates by 350 basis points, bringing the benchmark interest rate to a 14-year high of 5.50 percent from an all-time low of two percent to tame inflation and stabilize the peso.

“We expect the BSP to start scaling back the pace of rate hikes in early 2023 as it tries to balance growth and stability of the peso,” Zhu said.

According to Moody’s Analytics, fiscal support would do the heavy lifting in the coming year as the Marcos administration extended fiscal stimulus into 2023, which will help to bolster growth, support domestic spending, and continue investment in legacy infrastructure programs left behind by the Duterte administration.

“However, domestic demand will dial back in the coming year, which will moderate the pace of imports,” Zhu said.

She said that exports may show occasional but volatile strength from electronics exports in the near term.

The Philippines, Zhu said, must contend with slowing global growth that  makes it difficult for the country to maintain a strong trade performance.

Moody’s Analytics chief economist Steven Cochrane said the region would avoid recession in 2023 as recoveries continue among  economies in the region.

“Indeed,  Asia-Pacific economy in the aggregate will accelerate from 3.2 percent this year to 3.5 percent in 2023, although this is only because the largest economy in the region -  China - will rebound in the second half of 2023 as it begins to work through the multiple challenges that it faces,” Cochrane said.

The challenges include the lack of resolution of debt within the property development sector, China’s restrictive zero-COVID policies in place through November of this year, the expected surge in cases in the first half of 2023 due to the easing of most restrictions within an environment of little herd immunity, limited public health capacity, and a lack of mRNA vaccines approved for use in China.

“Nearly all of the rest of the region will decelerate in 2023 as it faces multiple global challenges. The region’s export economies face less demand from Europe and the US as the developed markets face the possibility of recession in 2023,” Cochrane said.

Moody’s Analytics expects interest rates remaining high as central banks are likely to follow the lead of the US Federal Reserve to quell inflation and protect foreign exchange rates.