A MAJOR bank said Friday the Philippine economy may not grow within the targeted range of 6 percent to 7 percent this year on the sluggish 4.3-percent expansion in the second quarter amid elevated inflation and interest rates that dampened consumer spending.
Metrobank Research, in its latest report, revised down its 2023 GDP growth forecast to 5.5 percent from 6 percent. It also adjusted its inflation outlook to 5.6 percent from 5.8 percent for 2023 and to 4.6 percent from 4.3 percent for 2024.
“The Philippine economy posted a more muted growth of 4.3 percent year-on-year in the second quarter of 2023, lower than the previous quarter’s 6.4-percent growth and market expectations of 6.0 percent. This was driven by the contraction in government and investment spending, and moderating consumption spending,” the report said.
It said consumer spending was expected to continue to moderate in the succeeding quarters and normalize toward its pre-pandemic growth trajectory as pent-up demand fades and the impact of previous monetary policy tightening manifests in the economy.
Government spending is expected to accelerate in the succeeding months to catch up eventually on the government’s programmed disbursements which may lend support to growth, it said.
“However, sluggish imports correlated with sluggish investment spending, which came from a higher base last year and given the currently high interest rate environment dampen the bank’s growth outlook,” it said.
Meanwhile, it said inflation showed a continued slowdown for the sixth straight month in July as it eased to 4.7 percent. Metrobank Research expects this trend to persist in the succeeding months without supply shocks.
“However, the bank also recognizes looming upside risks emerging from higher rice prices which may feed into the headline inflation by yearend and until the following year. While price pressures have significantly tempered for 2023, we see these upside risks to be a major consideration for the BSP that may push currently stable inflation expectations higher,” it said.
Metrobank Research said it expects the Bangko Sentral ng Pilipinas to keep the benchmark interest rate at 6.25 percent until yearend, with cuts likely to happen in 2024 and settle at 5.25 percent next year.
The National Economic and Development Authority earlier said the lower end of the 2023 growth target remained within reach. “We need to grow by 6.6 percent in the second half in order to achieve the lower target of 6 percent for the entire year. We really believe that it is achievable. We have not lost the value of the underspending in the first semester that we can deploy in the second semester,” it said.