BANK of the Philippine Islands (BPI) has reaffirmed its Philippine gross domestic product (GDP) forecast for 2023 at 5% to 6%, while warning that economic managers need to tap more growth drivers to make the recovery more robust.

BPI Global Markets Economist Rafael Alfonso Q. Manalili said in a statement on Thursday that the GDP per capita has not returned to pre-pandemic levels, which might not have been the case if the growth drivers had been diversified.

BPI’s economic growth forecast for 2023 is lower than the government’s estimate of 6% to 7%.

Economic output grew 7.2% year on year in the three months to December, bringing full-year growth to 7.6%. This beat the 7.5% estimate given by economists in a BusinessWorld poll and exceeded the government’s 6.5% to 7.5% goal.

It was also the highest growth rate since the 8.8% posted in 1976.

The bank noted that the slower economic growth is due to high inflation, which it sees gradually declining to the 4.5% to 5.5% range this year amid persistent supply constraints in agriculture.

The central bank’s inflation target range is 2-4%.

Headline inflation rose to 8.7% in January, above the 8.1% posted in December, the highest since the 9.1% reading in November 2008.

January inflation was also above the Bangko Sentral ng Pilipinas’ forecast range of 7.5-8.3% and was the 10th consecutive month inflation exceeded the central bank’s target.

Mr. Manalili added that aggressive rate hikes by central banks could increase the cost of financing projects and investing in hard assets like equipment and factories.

“It might prevent the private sector from ramping up their capital expenditure,” he said.

BPI expects additional rate hikes throughout the first half of 2023 before a pause in the second half.

The Federal Reserve could also even cut rates if the US enters a recession, BPI added.

Mr. Manalili noted that the current state of the economy is vulnerable, despite encouraging progress in consumer spending, remittances, and business process outsourcing revenue.

“The Philippine economy is a consumer-driven economy, and we have a strong consumer base. It’s an asset that has allowed us to grow by at least 6% in the past decade, but this makes us vulnerable in the context of a pandemic,” he said.

The Philippines needs to look for other growth drivers beyond household consumption and services for cushion in case of future shocks, Mr. Manalili said.

He added that the government should fast-track infrastructure development to attract more investment.

“We need to reduce the cost of producing goods, and to do that, we need to improve infrastructure. We have the highest electricity rates and transport costs in the region. It’s feasible for us to improve on that,” he said.

Mr. Manalili also noted that the manufacturing sector has grown modestly by 3% relative to pre-pandemic levels despite the support provided by global demand.

The Philippine Statistics Authority’s Monthly Integrated Survey of Selected Industries indicates that manufacturing, as measured by the volume of production index, expanded by 4.8% year on year in December.

The government needs to diversify in favor of investment spending, manufacturing, and exports, Mr. Manalili said.

“This will allow us to grow faster and will protect us from external shocks like the COVID-19 (coronavirus disease 2019) pandemic,” he said.

BPI booked a net profit of P39.6 billion in 2022, up 66%, driven by strong loan growth, higher net interest margins, and lower provisions.

BPI shares fell 90 centavos or 0.85% to P105.10 on Thursday. — Aaron Michael C. Sy