Philippines still projected to post fastest growth among ASEAN+3

The ASEAN+3 Macroeconomic Research Office (AMRO) still expects the Philippines to post the fastest economic growth in the region this year, despite external headwinds.

In its latest ASEAN+3 Regional Economic Outlook Report, AMRO kept its 6.2% growth estimate for the Philippines this year, the same forecast it gave in April.

This is also the fastest gross domestic product (GDP) growth projection among the ASEAN+3 economies for 2023, followed by Cambodia (5.7%) and China (5.5%).

ASEAN+3 is composed of the 10 members of the Association of Southeast Asian Nations (ASEAN) plus China, Japan and South Korea.

AMRO’s forecast for the Philippines is also above the 4.6% growth projection for ASEAN+3, and the 4.5% for ASEAN alone.

AMRO Chief Economist Hoe Ee Khor at a virtual briefing on Tuesday said that the Philippines has done “relatively well” in sustaining its growth.

“I think that’s partly because the structure of the economy is quite different from other ASEAN countries. The other economies are much more dependent on manufacturing goods export, whereas in the case of the Philippines, it’s a much more service-driven economy,” Mr. Khor said.

“Because of that, I think (the Philippines) has not been affected as much by the external headwinds and has benefited from the recovery of the services sector. So, we expect growth this year to remain about the same as previously, at 6.2%,” he added.

The AMRO’s forecast is within the government’s 6-7% GDP growth target for this year. In 2022, the Philippine economy expanded by 7.6%.

AMRO also kept its Philippine growth forecast for 2024 at 6.5%.

Rebound
Meanwhile, AMRO expects the ASEAN+3 region to grow by 4.6% this year, and by 4.5% in 2024.

“We expect growth for the ASEAN+3 countries to bounce back this year. The region will expand quite robustly this year, notwithstanding headwinds, driven by domestic demand and the boost by the recovery in the tourism sector which could offset weak goods exports,” Mr. Khor said.

For ASEAN alone, AMRO cut its 2023 GDP growth forecast to 4.5% from 4.9% previously, reflecting the “impact of weaker external demand on Singapore and Vietnam.” It expects ASEAN to expand by 5.3% in 2024.

However, Mr. Khor noted that while downside risks have “receded slightly” these could still threaten growth in the region.

These include financial spillovers from monetary tightening in the United States, the spike in global commodity prices, weak economic recovery in China, and the potential recession in the United States and Europe.

“Our baseline forecast could be derailed if any of these risks materialize,” Mr. Khor added.

Inflation
Meanwhile, AMRO also kept its inflation forecast for the Philippines at 5.9% this year.

“Inflation increased more sharply than we expected last year. On the other hand, it’s coming (down) sharply now because of the high base at the beginning of the year. We expect inflation for the whole year to be about the same as last year,” Mr. Khor said.

In its report, AMRO also noted that inflation will likely continue to stay above 5% due to “higher domestic cost pressures.”

In the first six months of the year, headline inflation in the Philippines averaged 7.2%, higher than the central bank’s 5.4% forecast.

“Headline inflation remained relatively elevated in the Philippines and Singapore due mainly to supply constraints in various sectors. Core inflation (which excludes food and energy prices) has been relatively sticky, especially in those economies where demand conditions were strong,” AMRO said.

Core inflation, which discounted volatile prices of food and fuel, averaged 7.7% in the January-June period.

AMRO expects Philippine inflation to ease to 3.8% by next year, still above the central bank’s 2.9% forecast.

Meanwhile, inflation rates in ASEAN+3 and ASEAN are seen to settle at 6.3% and 7.8%, respectively, this year.

“Inflation is coming down quite nicely, faster than we expected, although still above the targets for most countries in the region… Because of this, most central banks have paused their tightening cycle and in fact some of them have begun to ease monetary policy. This is a good sign, and the region has done well in terms of (managing) inflation,” Mr. Khor said.

Since May 2022, the Monetary Board has raised borrowing costs by 425 basis points, bringing the key interest rate to a near 16-year high of 6.25%. — Luisa Maria Jacinta C. Jocson