The Philippine economy is expected to grow 5.9 percent this year amid weaker external demand, the ASEAN+3 Macroeconomic Research Office (AMRO) said Tuesday.
“[The] Philippines’ economic growth is projected to moderate to 5.9 percent in 2023 due to high base effects and weaker external demand, before edging up to 6.5 percent in 2024 as external demand recovers,” said AMRO principal economist Runchana Pongsaparn who led the annual consultation visit to the Philippines from Aug. 29 to Sept. 8, 2023.
“Meanwhile, domestic demand is expected to remain robust supported by continued improvement in labor market conditions, lower inflation, robust overseas remittances, and higher government infrastructure spending,” Pongsaparn said.
AMRO director Kouqing Li and chief economist Hoe Ee Khor participated in the policy meetings and also met with Bangko Sentral ng Pilipinas Governor Eli Remolona Jr., Deputy Governor Francisco Dakila Jr. and Department of Finance Undersecretary Maria Edita Tan. Julito G. Rada
The discussions focused on the risks and challenges facing the Philippines, and policy options to sustain the growth momentum, manage elevated inflationary pressures, restore fiscal buffers and address long-term structural issues.
The gross domestic product of the Philippines expanded by 4.3 percent in the second quarter and 5.3 percent in the first half of 2023.
Economic managers said to achieve at least the lower end of the target range, the economy should grow by 6.6 percent in the second half.
AMRO expects Philippine inflation to moderate to 5.5 percent in 2023 from 5.8 percent in 2022 and slow further to 3.8 percent in 2024.
It said despite some moderation, inflationary pressure would likely remain elevated as reflected in the high level of core inflation, due to a positive output gap and the second-round effects induced by increases in the minimum wage and expectations of persistently high inflation.
AMRO said that on the external front, a widening current account deficit was partly offset by net capital inflows. External debt remained low and the international reserve buffer was adequate.
It said the Philippine economic outlook was clouded by various risk factors and challenges. In the short term, the economy could be adversely affected by high inflation, especially due to local supply shocks in the food sector.
AMRO said an economic slowdown in major trading partners and volatility in the global financial market, along with tighter financial conditions, also posed risks.
“The long-term growth potential is largely affected by the scarring effects of the pandemic, the pace of infrastructure development, geopolitical risks, and the economic losses from natural disasters, which are being exacerbated by climate change,” it said.
“The Philippine economy maintained its robust growth momentum in the first half of 2023, following a multi-decade high growth rate of 7.6 percent in 2022. Growth was supported by resilient domestic demand with a strong recovery in the labor market despite weaker external demand. Notwithstanding a widening current account deficit, external position remains sound with sufficient international reserve buffer and low external debt. Despite some moderation in 2023, inflation remained high, at a level above the 2 to 4 percent target, driven by buoyant demand,” it said.
AMRO noted that the BSP tightened monetary policy aggressively to address rising inflation and raised the policy interest rate by a cumulative 425 basis points between May 2022 and March 2023.
“At the current juncture, tightened monetary policy and contractionary fiscal stance is an appropriate policy mix amid a positive output gap and persistent inflationary pressure. The ‘all-of-government approach’ against inflation is welcomed as it addresses the supply side problems. Macroprudential tools can be used actively to address potential financial stability issues,” it said.
AMRO said that in the medium to long term, fiscal policy should balance between restoring fiscal buffer and supporting sustainable growth and development.
“A comprehensive strategy is warranted to bolster the Philippines’ medium- to long-term economic growth potential. Overcoming the scarring effects of the pandemic mandates a sustained focus on upgrading and upskilling the workforce to embrace a more technology-driven economy,” it said.
“The implementation of policies and measures to attract investments, particularly foreign investments, and promote exports of both goods and services are the underpinnings of long-term economic development. Furthermore, the government can enhance the country’s competitiveness through infrastructure investment, digitalization, and developing a green economy,” AMRO said.