THE ASEAN+3 Macroeconomic Research Office (AMRO) trimmed its growth outlook for the Philippines this year amid deteriorating global economic conditions.
In its Regional Economic Outlook Update released on Tuesday, the Philippine economy is expected to expand by 6.2% this year, slightly lower than the 6.3% projection given in October.
The AMRO’s 6.2% forecast is within the government’s 6-7% growth target this year, and the second-fastest growth in the region behind Vietnam’s 6.8%.
The gross domestic product (GDP) growth projection for 2023 will be much slower than last year when GDP likely expanded by 7.3% according to AMRO’s latest projection.
“The Philippines had a very strong year last year. It was very resilient and that’s why we revised up to 7.3% (from 6.9% previously). This year, we expect growth to revert back to 6.2%, so this is still a very strong growth rate, the economy has done well overall,” AMRO Chief Economist Hoe Ee Khor said at a virtual briefing.
The Philippine Statistics Authority is scheduled to release full-year GDP data on Jan. 26.
AMRO slashed its 2023 growth forecast for the ASEAN+3 region to 4.3% this year from 4.6% previously. The region is composed of the 10-member Association of Southeast Asian Nations (ASEAN), plus China, Japan and South Korea.
For the ASEAN region, AMRO also trimmed its growth projection to 4.8%, slightly lower than its earlier 4.9% estimate.
“The weakening global environment has taken the wind out of the sails of the region’s external trade momentum. The drag on economic activity from aggressive monetary policy tightening in the United States and euro area will be felt more fully this year, translating to softer export orders,” AMRO said in its report.
The think tank said that the global economy is projected to expand at a more “lackluster pace,” citing risks from a spike in energy prices, slower-than-expected recovery from China, and the possibility of more virulent coronavirus disease 2019 (COVID-19) variants.
While the risks weigh on the region’s outlook, China’s reopening may provide a counterbalance. The resumption of tourism, particularly the return of Chinese tourists, will boost the region’s growth.
“Tourist arrivals have picked up quite strongly. On a monthly basis, it has reached 40% of pre-pandemic levels and we expect it to continue to spike up with the reopening of China. Many countries depend on China for tourist arrivals,” Mr. Khor said.
INFLATIONWhile inflation has moderated, Mr. Khor said it still remains above target for most economies in the region.
AMRO raised its inflation forecast for ASEAN+3 this year to 4.5% from 3.4% previously. In 2022, inflation was projected to have averaged 6.3% in the region.
“Central banks in the region are very proactive in tightening. In any case, the level has already exceeded pre-pandemic levels. Central banks are very mindful of the need to anchor inflation. Because of that, they have been quite aggressive. Most of them have reached the end of the tightening cycle,” Mr. Khor said.
AMRO raised its inflation forecast for the Philippines to 4.3% this year, from 4% previously. Inflation averaged 5.8% in 2022, a 14-year high. The Bangko Sentral ng Pilipinas (BSP) expects inflation to ease to an average of 4.5% for 2023.
“Unlike other countries, the Philippines has no price subsidies to contain inflation. This is passed through commodity prices, and as a result inflation went up very quickly. The central bank has been very proactive in tightening aggressively, and because of that, now as you can see the policy rate has exceeded pre-pandemic levels,” Mr. Khor said.
The BSP raised rates by a total of 350 bps last year, bringing its policy rate to a 14-year high of 5.5%.
“Our recommendation is that once the economy has recovered strongly and growth is entrenched, then the central bank should focus on inflation and that is what the BSP has been doing,” Mr. Khor added.
The Philippines also needs to ramp up infrastructure investment.
“Infrastructure is a major weakness for the Philippines…I think the Philippines has to address the infrastructure problem to sustain its growth. We know that in tourism, there’s a lot of potential, but they need infrastructure to get tourists to come to the country. That’s one area I think they are focusing on to develop the industry,” Mr. Khor said. — Luisa Maria Jacinta C. Jocson