THE Philippines is expected to post gross domestic product (GDP) growth of 5.8% in 2024 due to weak external demand, elevated inflation, and high interest rates, Nomura Global Markets Research said.

The forecast downgrades to a previous estimate of 6.3%. The new projection is also below the government’s growth target of 6.5-8% next year.

“The revision to our 2024 GDP forecast reflects weakening external demand, led by China, Europe and the US, while persistently high inflation weighs on household purchasing power and consumption spending,” Nomura Global said in a research note written by analyst Euben Paracuelles.

Nomura Global said that 5.8% still reflects a slight improvement from a likely 5.3% expansion this year due to higher public infrastructure spending.

It had earlier slashed its Philippine growth forecast to 5.2% for this year from 5.5%. The projection is below the 6-7% government GDP target for this year.

The economy grew by a slower-than-expected 4.3% in the second quarter, from 6.4% in the first quarter and 7.5% a year earlier.

This was the weakest reading in over two years, bringing average growth to 5.3% in the first half.

“However, private investment faces strong headwinds from high interest rates and weak business sentiment,” Nomura Global said.

Nomura Global also expects the current account deficit to hit the equivalent of 4.1% of GDP this year, before easing to 3.7% in 2024.

This reflects “weak export growth, rising capital goods imports due to infrastructure projects and higher food imports to address domestic shortages, at a time when prices are likely to rise as a result of El Niño and protectionist measures by large food exporters, particularly on rice,” Nomura Global said.

The central bank reported a current account deficit of $4.3 billion in the first quarter, equivalent to 4.3% of GDP, up from $4 billion a year earlier. The current account deficit is projected to hit $15.1 billion, or 3.4% of GDP, this year.

Meanwhile, Nomura Global also raised its Philippine inflation projection to 5.9% for this year from 5.3% previously. It also hiked its 2024 inflation forecast to 3.6% from 3.1%.

“This takes into account the higher-than-expected outturn in August but also the fact that food price inflation risks are materializing early,” it said.

Inflation unexpectedly accelerated for the first time in seven months in August, as food and transport costs rose. Headline inflation accelerated to 5.3% in August from 4.7% in July, ending six months of decline.

Inflation in the seven-month period averaged 6.8%, still above the central bank’s revised 5.6% full-year forecast.

The Bangko Sentral ng Pilipinas (BSP) is unlikely to end its policy pause despite stronger August inflation.

“We maintain our forecast for BSP to leave its policy rate unchanged at 6.25% over the next few months, but see a rising risk of the BSP resuming its hiking cycle,” Nomura Global said, adding that the BSP will likely maintain its hawkish stance.

The Monetary Board last month paused for a third straight meeting, keeping its key policy rate at a near-16 year high of 6.25%. From May 2022 to March 2023, the central bank hiked benchmark interest rates by 425 basis points.

“A continued surge in food and energy prices and a deeper global growth slowdown are downside risks to growth,” Nomura said.

On the other hand, higher foreign direct investment, more structural reforms and accelerated implementation of infrastructure programs may boost economic growth. — Keisha B. Ta-asan