February 4, 2023

Filipino Guardian

Sentinels of Filipino Free Press

S&P sees slower PHL growth in 2023

Families enjoy taking photos at Luneta Park, Manila, November 28. The government expects the Philippine economy to grow by 6.5-7.5% this year. — FILIPINO STAR/ MIGUEL DE GUZMAN

S&P GLOBAL RATINGS revised upwards its forecast for Philippine economic growth this year to 7.1% but sees slower growth in 2023 due to the impact of higher interest rates and elevated inflation.

In a Nov. 27 report titled “Global Slowdown Will Hit, Not Halt, Asia-Pacific Growth,” S&P raised its forecast for Philippine gross domestic product (GDP) this year to 7.1%, faster than the estimate 6.3% in September.

However, S&P lowered its GDP growth forecast for next year to 5.2% from 5.7%. This is below the government’s growth target of 6.5-8% for 2023.

The credit watcher said strong consumption in economies like the Philippines will boost average regional growth in Asia-Pacific next year.

“Asia-Pacific will be a bright spot in the global economy in 2023. S&P Global Ratings believes that domestic resilience and solid growth in mainland China, albeit from a weak base, will keep regional growth at healthy levels. Strong consumption in the more domestically oriented economies of India, Indonesia and the Philippines will also lift the average,” it said.

The Philippine economy grew 7.6% in the third quarter, faster than the revised 7.5% in the second quarter. Average growth for the first nine months was 7.7%, still above the government’s full-year target of 6.5-7.5%.

S&P also said a recovery in domestic demand would boost growth in the Philippines next year.

“In some countries, the domestic demand recovery from COVID needs to go further. This should support growth next year in India, Indonesia, Malaysia, the Philippines and Thailand,” it said.

“Improving inbound tourism should support growth in (Malaysia, the Philippines, Thailand) and Japan, although the resumption of Chinese tourist arrivals is unlikely to happen until late 2023.”

Rising interest rates will “pronouncedly” hurt growth in some economies, she added.

“We expect Asia-Pacific ex-China GDP growth to slow to 3.9% in 2023 from 4.8% in 2022, before accelerating to 4.4% in 2024,” S&P said.

Bangko Sentral ng Pilipinas (BSP) raised its policy rate by 75 basis points (bps) to 5% – the highest level in almost 14 years. It has hiked rates by 300 basis points since May so far to tame inflation.

Headline inflation accelerated to a near 14-year high of 7.7% in October. Inflation averaged 5.4% over the 10-month period, still below GNP’s revised forecast of 5.8% for the full year.

The credit watcher expects Philippine inflation to average 5.5% this year and 4.3% in 2023, still above GNP’s target of 2-4%. Inflation is expected to fall to 2.7% in 2024.

S&P said it expected GNP interest rates to hit 5.5% this year, pointing to a 50 basis point rate hike at its December meeting. BSP is expected to keep interest rates on hold for next year before cutting it to 4% in 2024.

Earlier this month, S&P Global Ratings confirmed the Philippines’ investment grade rating of BBB+.

“The Philippines’ economy is recovering healthily, spurred by strong domestic demand as the country lifts mobility restrictions and fully reopens,” S&P said.

The credit evaluator said it maintained a “stable” outlook for the Philippines, reflecting expectations of an economic recovery, and that the budget deficit would “reduce significantly” over the next two years.

On S&P’s global rating scale, BBB+ is considered an investment grade rating and reflects “a government’s reasonable ability to meet its financial obligations but is more exposed to adverse economic conditions.” — Keisha B. Ta-asan