GDP growth forecast at slower 5.5% pace

MANILA, Philippines — The research unit of Metropolitan Bank & Trust Co. (Metrobank) now expects a slower economic growth for this year amid a confluence of various economic developments.

In its monthly bulletin, Metrobank Research lowered its gross domestic product (GDP) growth forecast to 5.5 percent from six percent for this year.

The Philippines booked a more muted GDP expansion of 4.3 percent in the second quarter, lower than the market expectation of six percent from 6.4 percent in the first quarter of the year.

This brought the average GDP growth to 5.3 percent in the first half of the year, lower than the six to seven percent growth penned by economic managers.

“This was driven by the contraction in government and investment spending, and moderating consumption spending,” Metrobank said.

According to the bank, consumer spending is expected to continue to moderate in the succeeding quarters and to normalize toward its pre-pandemic growth trajectory as pent-up demand fades and the impact of previous monetary policy tightening manifests in the economy.

Likewise, it added that government spending is also projected to accelerate in the succeeding months to catch up eventually on the government’s programmed disbursements, which may lend support to growth.

However, Metrobank warned that sluggish imports correlated with sluggish investment spending, which comes from a higher base last year.

“The currently high interest rate environment dampen the bank’s growth outlook,” it said.

The Bangko Sentral ng Pilipinas (BSP) raised key policy rates aggressively by 425 basis points between May 2022 and March 2023 to tame inflation and stabilize the currency that slumped to an all-time low of 59 to $1 last October.

With the inflation downtrend to 4.7 percent in July from a peak of 8.7 percent last January and the stable currency, the BSP has maintained a hawkish pause as it kept interest rates unchanged since May this year.

Metrobank Research expects this trend to persist in the succeeding months sans supply shocks.

However, the bank also recognizes looming upside risks emerging from higher rice prices, which may feed into the headline inflation by yearend and until next year.

Metrobank lowered its inflation forecast to 5.6 percent from 5.8 percent for this year, but raised next year’s projection to 4.6 percent from 4.3 percent.

“While price pressures have significantly tempered for 2023, we see these upside risks to be a major consideration for the BSP that may push currently stable inflation expectations higher,” Metrobank said.

The Ty-led bank now expects the BSP Monetary Board to keep the benchmark interest rate steady at 6.25 percent instead of a 25-basis point cut to six percent for this year.