The Philippines is unlikely to hit its 6.5-8% gross domestic product (GDP) growth target in 2024, due to high borrowing costs and increasingly gloomy trade outlook.
“We are expecting Philippine economic growth to accelerate from 5.3% in 2023 to 6.2% in 2024. That is still less optimistic than the government’s projections of 6.5-8%,” BMI Asia Country Risk Analyst Shi Cheng Low said in an e-mail.
He noted the dimmer trade outlook and elevated interest rates to tame rising inflation are two major headwinds to the economy’s expansion next year.
“We think that the trade cycle downturn has further to run. Growth in both the US and Mainland China, the Philippines’ two largest partners, is set to slow next year, which will limit any recovery in exports,” Mr. Low said.
Mr. Low said in a webinar on Tuesday that the US economy may enter a shallow recession in the second and third quarter of 2024, while China’s economic growth may slow to 4.7% in 2024 from 5.2% this year.
The Development Budget Coordination Committee projects goods exports and imports to grow by 1% and 2%, respectively, this year. Exports growth is expected to stabilize at 6% in 2024 to 2028, while imports are expected to grow by 8% annually during the same period.
Mr. Low said the Bangko Sentral ng Pilipinas (BSP) will also likely maintain its hawkish stance during the first half of 2024, as inflation remains elevated.
“Increasing price pressures will prompt the central bank to resume its tightening cycle. We now think that a hike of 25 basis points (bps) is possible in the November meeting,” he said.
BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board is considering another 25-bp rate hike on Nov. 16, and even hinted at an off-cycle rate hike if price pressures persist.
“Still, we think the tightening cycle will have not much further to run beyond that,” Mr. Low said.
The BSP has kept the key interest rate at a near 16-year high of 6.25% for the last four meetings. To curb inflation, it has hiked borrowing costs by 425 bps from May 2022 to March 2023.
BMI expects Philippine inflation to average around 3.6% next year, well within the 2-4% target band of the BSP, but a tad higher than the central bank’s 3.5% forecast for 2024.
“But we note that risks are skewed to the upside due to the El Niño phenomenon and the Hamas-Israel conflict being potential sources of upside price volatility,” Mr. Low said.
Meanwhile, Security Bank Corp. Chief Economist Robert Dan J. Roces said while another rate hike can be effective in stabilizing prices and support the local currency against the dollar, it may slow down economic growth and burden borrowers with higher debt costs.
“Balancing inflation control and economic growth is a complex task that calls for a multi-faceted approach. In addition to rate hikes, government authorities could consider supply-side policies, fiscal stimulus, and foreign exchange interventions among other measures,” he said in a Viber message.
Mr. Roces said a cautious approach that avoids further monetary tightening could be “more prudent” in dealing with inflation, given the risks to economic growth.
“The BSP will be very wary of over tightening especially as investment weakness has been very apparent in the latest growth data,” BMI’s Mr. Low said.
The Philippine economy grew by an annual 4.3% in the second quarter, the slowest in over two years. It was weaker than the 6.4% growth in the first quarter.
For the first semester, GDP growth averaged 5.3%.
Gross capital formation dipped by 0.04% in the second quarter, a reversal of the 12.6% growth in the first quarter and 17.2% in the second quarter of 2022.
Third-quarter GDP data will be released on Nov. 9.
“As for rate cuts, we expect it to materialize in the second half of 2024, similar to our projections for the Fed. This means that interest rates will be kept at multi-year highs for a prolonged time,” Mr. Low said.
At its meeting last month, the US Federal Reserve kept its own policy rates unchanged at 5.25-5.5%. — By Keisha B. Ta-asan, Reporter