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Philippine annual inflation in September is expected to settle within the range of 5.3% to 6.1%, the central bank said on Friday, ahead of the data release next week.

Higher prices of fuel, electricity, and key agricultural commodities, as well as peso depreciation are the primary sources of upward price pressures in September, the Bangko Sentral ng Pilipinas (BSP) said in a statement.

Lower prices of rice and meat could contribute to downward price pressures for the month, it said.

Headline inflation in August quickened for the first time in seven months to 5.3% due largely to an uptick in food and transport costs, keeping pressure on the central bank to maintain its hawkish policy stance.

On Thursday, BSP Governor Eli M. Remolona doubled down on his hawkish signals, saying there was “a little bit of scope” for an off-cycle interest rate hike “depending on the numbers”.

Last week, he said a hike was on the table at the BSP’s rate-setting meeting in November.

The BSP on Sept. 21 kept its Target Reverse Repurchase Rate steady at 6.25%, for a fourth straight meeting, after a series of hikes from May last year to March this year to curb inflationary pressures.

“Going forward, the BSP will continue to monitor developments affecting the outlook for inflation and growth in line with its data dependent approach to monetary policy formulation,” it said in Friday’s statement. — Reuters

Economic growth likely rebounded in the third quarter as the government addressed underspending, National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said.

Asked if third-quarter gross domestic product (GDP) would be better than the second-quarter print, Mr. Balisacan told reporters on Wednesday: “That’s what we’re expecting.”

Philippine GDP expanded by 4.3% in the April-to-June period, the slowest in two years. This was weaker than the 6.4% growth in the first quarter and 7.5% in the same period last year.

The disappointing second-quarter growth was mainly attributed to weaker consumption and a decline in government spending. Government spending contracted by 7.1% in April to June, a reversal of the 6.2% growth in the first quarter and 10.9% a year ago.

“The contribution (to the economy) that we were expecting from government spending did not fully materialize in the second quarter, it can be recovered in the third or fourth quarter. It was not completely lost,” Mr. Balisacan said.

Government agencies have been flagged for their low budget utilization in the first half of the year. Data from the Budget department showed that the cash utilization rate of government agencies hit 93% as of end-August, behind the year-earlier pace of 95%.

Budget Secretary Amenah F. Pangandaman earlier said that the economy could have expanded by 5.3% in the second quarter if not for underspending.

Agencies have been ordered to submit catch-up spending plans to address low utilization. Mr. Balisacan also said that the economic team has been reporting the state of these catch-up plans to the President.

The NEDA chief is unfazed by recent growth downgrades by multilateral lenders and institutions, saying this is expected amid continued global headwinds.

“Let me just put in context that the reduced growth forecast by the Asian Development Bank (ADB) and other institutions is true for almost every country because of what they’re seeing in the global market. There are still quite upside risks there. It’s not just us,” he said.

The ADB recently lowered its Philippine GDP growth forecast to 5.7% this year from 6%; while the ASEAN+3 Macroeconomic Research Office cut its projection to 5.9% from 6.2% previously. The Organisation for Economic Co-operation and Development trimmed its GDP outlook to 5.6% from 5.7% earlier.

“If you look at the first-half growth of the country, we are still better than most countries in Asia, particularly in our ASEAN (Association of Southeast Asian Nations) region. Our first half is very respectable. I think that if we come close to that first-half (figure), we should be okay,” Mr. Balisacan added.

For the first half, GDP growth averaged 5.3%, lower than the government’s 6-7% target.

“As I said earlier, we need to grow 6.6% (in the second half) to achieve the lower growth (target), but even if that’s a little lower, I’d still be happy considering what has happened in the world and you can see that such performance will still make us quite a respectable country,” he said.

Mr. Balisacan said inflation remains the government’s biggest challenge.

“That’s why we (the economic team) are so focused on addressing the inflation issue because that high inflation as we all know reduces domestic demand, so we are incessantly monitoring the situation,” he said.

Inflation quickened to 5.3% in August from 4.7% in July. This marked the 17^th straight month inflation breached the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target band.

Headline inflation averaged 6.6% in the first eight months, still above the BSP’s revised 5.8% full-year forecast.

The Philippine Statistics Authority is set to release preliminary third-quarter GDP data on Nov. 9. — Luisa Maria Jacinta C. Jocson

ANZ Research slashed its Philippine gross domestic product (GDP) growth forecast to 5% this year as economic activity is “losing steam much faster than anticipated.”

“We have revised down our 2023 full-year GDP growth forecast to 5% from 5.8%. The second-quarter 2023 outcome was weaker than anticipated and prospects are subdued,” it said in its latest Asia Economic Outlook.

The ANZ’s growth forecast is way below the government’s 6-7% growth target for this year.

This comes after Philippine GDP growth slowed to 4.3% in the second quarter from 6.4% in the first quarter and 7.5% in the same period in 2022. In the first half, GDP expansion averaged 5.3%.

“Private consumption growth should continue to moderate on the back of slower growth in remittances and an uninspiring pattern of job creation,” ANZ said.

Household spending, which accounts for three-fourths of GDP, grew by 5.5% in the second quarter. This was the slowest pace of private consumption growth since the 4.8% contraction in the first quarter of 2021.

Based on ANZ’s forecasts, private consumption is expected to jump by 5.3% this year, easing from 8.3% seen in 2022.

ANZ noted that most of the new jobs being created are in agriculture and sales, which typically have low wages.

“More importantly, the flow of funds data suggests households are dissaving. The only tangible support to household consumption has been credit. Consumption credit has been rising in double digits and is also reflected in sturdy auto sales and consumer goods imports,” it said.

However, credit growth is unlikely to be sustained amid high interest rates and tighter bank lending standards, it added.

The Bangko Sentral ng Pilipinas (BSP) has raised interest rates by 425 basis points (bps) to a near 16-year high of 6.25% to tame inflation.

“Overall, the outlook for household consumption is best reflected in the moderation in consumer confidence,” ANZ said.

Many corporates are also not planning to invest and expand this year, ANZ said, citing “insufficient demand” as a key business constraint.

The outlook for exports “remains muddy,” it said, giving a 2.5% growth forecast for this year, much slower than the 10.9% growth in 2022.

“Our GDP growth forecasts for key markets for Philippines’ exports suggest weaker demand in 2024. Admittedly, the tech cycle is now reviving but the strength of the rebound is yet to be established. The competitiveness of the Philippines’ electronics industry is also debatable,” ANZ said.

Meanwhile, the Philippine economy is expected to rebound in the next two years, with ANZ giving a 5.6% GDP growth forecast for 2024 and 6% in 2025. These forecasts are below the government’s 6.5-8% growth goals for both years.

Cut unlikely in 2024
Meanwhile, ANZ expects the Bangko Sentral ng Pilipinas (BSP) to maintain the pause in its tightening cycle for the rest of the year.

“Our view is that the BSP will hold the policy rate at 6.25% and that a cut is unlikely even in 2024,” it added.

On Monday, BSP Governor Eli M. Remolona, Jr. said that he is open to an off-cycle interest rate hike before the Monetary Board’s Nov. 16 meeting.

“The acceleration in August inflation will ensure a hawkish policy stance, albeit further rate rises are unlikely. In our view, the BSP will likely monitor the effectiveness of the rice price cap and the secondary impact of higher food and energy prices before initiating another rate hike,” ANZ said.

ANZ noted the outlook for inflation has deteriorated due to the spike in food and energy prices.

Inflation accelerated for the first time in seven months in August to 5.3%, bringing the eight-month average to 6.6%.

“While the intensity of the emerging El Niño or the effectiveness of the recently imposed rice price ceiling are yet to be established, the momentum in headline (inflation) suggests it will fall back into the central bank’s target range of 2-4% only in Q1 2024, compared with our earlier expectation of Q4 2023,” ANZ said.

ANZ sees inflation averaging 6% this year, still above the central bank’s 2-4% target and 5.8% full-year forecast. For 2024, it sees inflation settling at 3.5%.

Meanwhile, ANZ said the government is on track to meet its deficit target this year. The government set its deficit ceiling at PHP 1.499 trillion this year, equivalent to 6.1% of GDP.

“Fiscal consolidation will continue over the coming years but likely at a slower pace than projected. The government’s growth and revenue estimates look ambitious, particularly when the growth drivers are weak,” it added.

As of end-June, the National Government’s deficit-to-GDP ratio stood at 4.8%, lower than 6.5% in the same period in 2022. — Luisa Maria Jacinta C. Jocson

The National Government (NG) plans to borrow PHP 150 billion from the domestic market in October, the Bureau of the Treasury (BTr) said on Thursday.

The October borrowing plan is 16.67% lower than the PHP 180-billion program for September, but higher than the actual PHP 121.064 billion raised by the government this month.

The government plans to borrow PHP 60 billion from T-bills and PHP 120 billion via T-bonds in September, the BTr said.

Broken down, the government will offer PHP 5 billion each in 91-day, 182-day, and 364-day T-bills on Oct. 2, 9, 16, and 23.

For the long-term tenors, the BTr will offer PHP 30 billion in five-year T-bonds on Oct. 10 and PHP 30 billion in seven-year bonds on Oct. 17.

It will also auction off PHP 30 billion in 10-year T-bonds on Oct. 24.

The lower borrowing plan for October could have been due to the lower amount of government bond maturities during the month versus September and August, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Meanwhile, rates for the T-bills and bonds to be offered next month could be steady due to elevated US Treasury yields recently, he added.

“Excess liquidity in the financial system could still support demand for government securities, but could be offset by [the] lower amount of maturing government bonds in October/4Q 2023,” he said.

The BTr set a lower October borrowing plan likely to give way to its retail dollar bond (RDB) issuance, China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.

The government raised an initial USD 611.2 million (PHP 34.8 billion) at the rate-setting auction of its second onshore RDBs on Wednesday, more than three times the minimum issue size of USD 200 million.

The five-and-a-half-year bonds fetched a coupon rate of 5.75%.

The BTr could potentially raise more than USD 1 billion via the RDBs as investors view it as an alternative to local government securities, Mr. Ricafort said.

Hawkish signals from the Philippine central bank and inflation likely remaining above 5% this month could also contribute to elevated returns for the government securities, Ms. Velasquez added.

BSP Governor Eli M. Remolona, Jr. told Bloomberg on Monday that he is open to an off-cycle rate hike before their Nov. 18 meeting and ruled out cuts in the near term.

The central bank kept its benchmark rate unchanged for a fourth straight meeting at 6.25% last week.

However, officials signaled they might resume tightening at their next meeting if inflation pressures persist.

The NG’s gross domestic borrowing program this year is set at PHP 1.654 trillion, composed of PHP 54.1 billion in T-bills and PHP 1.6 trillion in T-bonds.

The government borrows from local and external sources to help fund a budget deficit capped at 6.1% of the gross domestic product this year. — A.M.C. Sy