Economy may grow 5.5% this year – GlobalSource

MANILA, Philippines — New York-based GlobalSource Partners upgraded its 2023 economic growth forecast for the Philippines to 5.5 percent from five percent on the back of the expected stronger global economy amid the reopening of China.

In its quarterly report, the think tank said the projected expansion for this year is slower than last year’s 7.6 percent GDP growth and lower than the six to seven percent target set by the Cabinet-level Development Budget Coordination Committee (DBCC).

“We enter 2023 as if going down a rabbit hole, not quite sure if surprises ahead will be the pleasant or biting sort. Although global growth is still expected to weaken, China’s reopening offers hope of larger rebound, especially in tourism,” former finance undersecretary Romeo Bernardo and Christine Tang said.

They said the downside risks to the Philippines’ growth forecast include continued lapses in the management of food supplies that have contributed to skyrocketing prices of basic goods, and President Marcos’ upcoming choice for Bangko Sentral ng Pilipinas governor, which is critical for preserving the confidence that markets have on the incumbent.

Bernardo and Tang also cited possible mid-year changes in the Cabinet of the Marcos administration.

They said the external outlook also faces risks from more turbulence in financial markets, elevated and volatile commodity prices, trade disruption due to heightened US-China tensions and the resurgence in COVID cases.

On the upside, the analysts pointed out that the Senate’s recent ratification of the Regional Comprehensive Economic Partnership (RCEP) as well as closer security ties with the US could see the start of friend-shoring investments trickling in.

Externally, GlobalSource said world economic growth is still expected to weaken following the series of huge rate hikes by the US Federal Reserve last year, and downside risks still dominate.

Although the economy still has remittances from overseas Filipino workers and the business process outsourcing sector to fall back on, GlobalSource added that the large windfall from last year’s rally after the peso slumped to an all-time low of 59 to $1 in October has disappeared.

“Too, although financial conditions remain tight, inflation high and macro policy space limited, receding memories of the pandemic hold out the chance of stronger growth momentum from residual pent-up demand,” GlobalSource said.

To tame inflation and stabilize the peso, the BSP has raised key policy rates by 400 basis points to a 16-year high of six percent from an all-time low of two percent.

“Indeed, we expect the cumulative effects of last year’s aggressive monetary tightening to bite more into domestic demand,” Bernardo and Tang said.

The New York-based think tank is now expecting inflation to accelerate further to 6.5 percent this year from 5.8 percent last year after the BSP raised its forecasts to 6.1 percent from 4.5 percent for 2023 and to 3.1 percent from 2.8 percent for 2024.

“Thus, we expect to see quite elevated headline inflation rates in the months ahead and for now are not expecting the headline rate to slide back to the BSP’s four percent upper-end target until very late in the year, with the full-year average likely settling at a relatively high 6.5 percent,” they said.

GlobalSource sees the BSP is delivering a smaller 25-basis-point hike in the next rate-setting meeting of the Monetary Board scheduled on March 23.