Higher energy costs to weigh on PHL growth

THE PHILIPPINE ECONOMY’S recovery this year may face risks arising from higher energy costs and the ongoing coronavirus pandemic.

The Organisation for Economic Co-operation and Development (OECD) said Philippine gross domestic product (GDP) will likely expand by 7% this year, driven by infrastructure spending and remittances. The OECD released its Economic Outlook for Southeast Asia, China, and India 2022 report on Tuesday.

“Faster implementation of investment projects in infrastructure, plus the recovery in cash remittances by overseas Filipino workers constitute upside factors to the forecast,” Kensuke Tanaka, OECD Development Centre Asia head of unit, said in an e-mailed response to questions.

“Pandemic-related uncertainties as infections due to the Omicron variant remain elevated continue to pose downside risks to the forecast,” he added.

The government allocated P1.18 trillion for its infrastructure program this year, or the equivalent of 5.3% of GDP.

The central bank expects remittances to grow by 4% this year. In January, cash remittances went up by 2.5% year on year to $2.668 billion.

“The war in Ukraine is anticipated to affect the Philippines through higher prices for oil, natural gas, but also through higher food prices,” Mr. Tanaka said.

The OECD’s GDP estimate for the Philippines is at the lower end of the government’s 7-9% growth forecast for 2022. The forecast is also higher than the OECD’s 5.8% average growth seen for emerging Asia this year.

The Philippine economy accelerated by 5.6% last year following a record 9.6% contraction in 2020.

The OECD expects the Philippines to post a 6.1% GDP growth next year, still higher than the 5.2% it estimates for emerging Asia in 2023.

LOWER FORECAST
On the other hand, Citigroup, Inc. lowered its GDP forecast for the Philippines this year to 6.5%, down from its previous 6.8% estimate.

“[R]ecent increases in commodity prices, especially energy, will still weigh on consumer confidence and household consumption, especially with a lack of energy subsidies at this juncture and weak income growth,” Citi economist for the Philippines Nalin Chuchotitham said in a report.

Household spending makes up more than three-fourths of the Philippine GDP. It expanded by 4.2% in 2021 from a decline of 7.9% in 2020.

Ms. Chuchotitham said their estimates show GDP growth could be slashed by around 0.07 percentage point in a scenario where crude oil will increase by around 11%.

Citi revised its average Brent crude price forecast for this year to $91 a barrel as of March 7, from $79 a barrel as of Feb. 25. Oil prices are seen to go up to $102 a barrel in the second quarter, before falling to $79 in the fourth quarter.

Fuel retailers slashed prices of gasoline, diesel, and kerosene on Tuesday, ending 11 weeks of steadily rising prices. Since January, pump prices of gasoline, diesel and kerosene have now increased by P14.90, P19.20, and P16.35 per liter, respectively.

The more relaxed virus restrictions are also seen to drive recovery as more consumers go out and spend. Metro Manila and other provinces have been under Alert Level 1 since the start of March as coronavirus infections declined.

“This is consistent with our expectations and supportive of continued domestic demand recovery,” Ms. Chuchotitham said.

Meanwhile, Citi now projects inflation to reach 3.5% in 2021, faster than their previous 3.2% estimate but still within the central bank’s 2-4% target.

“This is mainly from energy prices in 2022, but we expect the year-on-year food inflation to be less pronounced, although mainly due to a high base last year,” Ms. Chuchotitham said.

As there is still a need to support the economy given the negative output gap and the lackluster labor market, Citi said the Bangko Sentral ng Pilipinas will only start increasing interest rates by 25 basis points in the fourth quarter of 2022.

The Monetary Board will hold a policy review meeting on March 24. — Luz Wendy T. Noble and Jenina P. Ibañez