Moody’s Analytics slashes PHL GDP forecast to 5.7%

MOODY’S ANALYTICS slashed its growth projection for the Philippine economy to 5.7% this year, as household consumption is seen to weaken due to elevated inflation and rising interest rates. 

In a research note dated March 20, Moody’s Analytics Chief Asia-Pacific Economist Steven Cochrane said the Philippines had the largest downward revision to its growth outlook across the region.   

Moody’s latest Philippine gross domestic product (GDP) estimate is much lower than the 7.1% it gave in February, and below the government’s 6-7% full-year target.

“Inflation has come in higher than expected in the opening months of 2023, adding to expectations that the central bank will continue tightening borrowing costs. This will have a greater downward impact on domestic demand, particularly household consumption,” Mr. Cochrane said. 

Headline inflation eased to 8.6% in February from the 14-year high of 8.7% in January. Core inflation, however, accelerated to 7.8% in February from 7.4% in January, its fastest pace in over 22 years.   

Moody’s Analytics also raised its Philippine inflation forecast to 6.8% this year, from the 5.3% estimate given in February. It also revised upwards its inflation projection for 2024 to 4.1% from 3% previously. 

The Bangko Sentral ng Pilipinas (BSP) expects inflation to average 6.1% this year, and 3.1% in 2024.

According to Mr. Cochrane, central banks in the region may continue their tightening cycle, especially in countries where inflation is still running hot, such as the Philippines, Australia, India, and Vietnam. 

The BSP has raised borrowing costs by 400 basis points (bps) since May 2022, bringing the key policy rate to a near 16-year high of 6%. A BusinessWorld poll last week showed 12 out of 14 analysts expect the BSP to hike rates by 25 basis points (bps) on Thursday.

“With the weaker global economy this year, growth of remittances also will soften, adding another hit to private consumption and housing investment,” Mr. Cochrane said.

In an e-mail, Moody’s Analytics Senior Economist Katrina Ell said weaker household spending will likely be a “an important driver of the broader economic slowdown this year.”

She said private consumption growth may slow to 5.3% this year, from 8.3% in 2022. Private consumption typically accounts for around 75% of Philippine GDP. 

“Households are under pressure from ongoing high inflation and rising borrowing costs that will weaken employment and income growth. While nominal consumption may be up in the first half of 2023 due to elevated inflation, real consumption will be trending lower,” Ms. Ell said.

In the Moody’s report, Mr. Cochrane said an improvement in service exports for tourism will not be enough to offset a downtrend in goods exports.

“Service exports also include business process outsourcing, which follows global growth,” Mr. Cochrane said. — Keisha B. Ta-asan