S&P hikes 2023 GDP outlook for Philippines

S&P Global Ratings raised its gross domestic product (GDP) growth forecast for the Philippines to 5.4% this year but lowered its projection for next year to 5.9%.

At the same time, it expects the Bangko Sentral ng Pilipinas (BSP) to deliver one more rate hike this year, before cutting borrowing costs by 75 basis points (bps) in 2024 and by 175 bps in 2025.   

In its economic outlook report for Asia-Pacific Q1 2024, the debt watcher revised upwards its GDP forecast for the Philippines to 5.4% from 5.2% it gave in September. Still, this is below the 6-7% government target.   

Meanwhile, S&P lowered its 2024 projection to 5.9% from 6.1% previously. The credit rater also sees Philippine GDP to hit 6.2% in 2025 and 6.4% in 2026.   

The forecasts from 2024 to 2026 are all below the government’s 6.5-8% growth target over the medium term.   

“Asia-Pacific economies outside of China remain resilient. Growth this year and in 2024 should be the strongest in emerging market economies with solid domestic demand: India, Indonesia, Malaysia, and the Philippines,” it said.

The Philippine economy grew by 5.9% in the third quarter, faster than the 4.3% growth in the second quarter. For the first nine months of the year, economic growth averaged 5.5%, still below the government’s 6-7% full-year target.   

According to S&P, the purchasing managers’ indices (PMIs) in the Asia-Pacific region showed manufacturing activity continued to expand in October.   

“In Southeast Asia, the manufacturing PMI mostly exceeded 50 in October, including in the Philippines, where it has jumped since September,” the credit rater said.   

The S&P Global Philippines Manufacturing PMI climbed to 52.4 in October from 50.6 in September. This was the second straight month of improvement in operating conditions and its fastest upturn in seven months.

A PMI reading above the 50 mark denotes improvement in operating conditions, while a reading below 50 signals deterioration.

Inflation has also continued to ease in the region despite recent spikes in energy and food prices, S&P Global Ratings said.    

“There are some food price risks on the horizon in Asia due to the prolonged El Niño event. However, the impact of recent increases in international prices of oil and food has so far generally remained modest,” it said.

In the report, S&P sees Philippine inflation averaging 5.9% this year, lower than the BSP’s 6% baseline forecast. Inflation is seen to ease to 3.4% in 2024, 3.2% in 2025, and 3% for 2026.   

It noted that lingering inflation risks may still keep central banks in the region occupied, including the BSP.   

The debt watcher said the BSP’s key interest rate may stand at 6.75% by end-2023, indicating that the Monetary Board may deliver one more 25-bp rate hike at its December meeting.    

S&P noted the BSP may slash rates by 75 bps to 6% in 2024, before cutting further by 175 bps to 4.25% in 2025. The central bank is also expected to trim rates by 25 bps to 4% by end-2026.   

“With core inflation continuing to ease, the region’s central banks are unlikely to have to tighten monetary policy again. Still, given the pressure from higher-for-longer US interest rates, we expect no meaningful falls in policy rates for the next six months,” S&P said.   

Earlier this month, the BSP kept the key policy rate steady at a 16-year high of 6.5%. Including its off-cycle move in October, the BSP has hiked borrowing costs by 450 basis points since May 2022. 

Meanwhile, the US Federal Reserve kept the target Fed fund rate unchanged at 5.25-5.5% at its meeting this month. The US central bank has raised 525 bps from March 2022 to June 2023.   

The Monetary Board will meet on Dec. 14 to discuss policy, its last meeting for the year. — Keisha B. Ta-asan