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