Government trims inflation forecast for this year

MANILA, Philippines — The economic team of the Marcos administration has turned optimistic about the inflation trend in the country, narrowing its assumption to as much as six percent only, but warned cooling inflation would not be enough to boost overall growth amid other global risks.

During the 185th Cabinet-level Development Budget Coordination Committee (DBCC) briefing yesterday, the economic team trimmed its inflation assumption to five to six percent from the previous target of five to seven percent in April.

Last year, inflation hit 5.8 percent.

Budget Secretary and DBCC chair Amenah Pangandaman said the adjustment was due to a consistent slowdown in inflation which further eased to 6.1 percent in May, marking the fourth straight month of decline.

Nonetheless, average inflation for the five-month period at 7.5 percent is still above the now revised expectation of the economic team for the whole year.

“It is expected that the inflation rate will return to the target range by 2024 as the administration provides proactive measures to address the primary drivers of inflation,” Pangandaman said.

“This, together with appropriate monetary policy actions of the Bangko Sentral ng Pilipinas, will help ensure a return to the inflation target over the policy horizon,” she said.

Even as the DBCC slashed its inflation assumption for the year, the economic team is not seeing such a downtrend to significantly boost overall growth amid other risks in the global and domestic fronts.

The DBCC retained its six to seven percent gross domestic target (GDP) target for 2023 as it took into account both domestic and external risks such as El Nino and other natural disasters, global trade tensions, and value chain disruptions, among others.

This is a slowdown from the 7.6 percent GDP expansion recorded in 2022.

“We do recognize that the external environment today is still not as good as we would like it to be. The forecast for global growth is still on a downtrend,” NEDA Secretary Arsenio Balisacan said.

“Even as the performance of the economy in the first quarter was better-than-expected, there are also lag effects of previous actions to tame inflation such as higher interest rates that are expected to take their course for the rest of the year,” he said.

The BSP raised key policy rates nine times since May last year for a total of 425 basis points.

Balisacan emphasized that the majority of the country’s growth still relies on domestic demand which the government aims to strengthen to offset the negative headwinds from the global economy.

“We have favorable macroeconomic fundamentals, inflation is going down, the BSP already paused its rate hikes. All these factors are converging to a stronger domestic economy,” Balisacan said.

Nonetheless, GDP is seen picking up by 2024 to 2028 and register a 6.5 to eight percent growth which remains to be the original target of the DBCC.

“We are confident that the country can withstand the risks and achieve upper-middle-income status in the next two years through the implementation of near- and medium-term strategies,” Pangandaman said.

These include ensuring timely and adequate importation, providing preemptive measures to address El Nino, strengthening biosecurity, enhancing agricultural productivity, and pushing for legislative reforms, among others.

Further, the assumption for the price of Dubai crude oil for this year and next was retained at $70 to $90 per barrel considering the global demand slowdown.

By 2025, it is projected to further decline to $60 to $80 per barrel as the latest future prices and forecasts still suggest falling global crude oil prices over the medium term.

On the other hand, DBCC’s peso-dollar exchange rate assumption for this year was slightly adjusted upward to P54 to P57 a dollar and be broadly stable at P53 to P57 for the remainder of the medium term.

The DBCC said the peso will continue to be supported by structural foreign exchange inflows and ample international reserves.

Meanwhile, goods exports and imports growth projections for the year were revised downwards at one percent and two percent from three percent and four percent, respectively, following the trend in near-term global demand outlook and trade prospects.

BSP Deputy Governor Francisco Dakila said the DBCC also took into account preliminary data that exports contracted 13.2 percent while imports declined three percent.

“The biggest factor behind the deceleration in exports would come from electronic products attributable to tapering global demand for semiconductors,” Dakila said.

“There is also a deceleration in coconut products and mineral products due to lower commodity prices,” he said.