People walk past stalls selling Christmas lanterns in San Fernando, Pampanga, Nov. 7. Philippine economic growth likely slowed in the fourth quarter, but hit the upper end of the full-year target in 2022, according to a BusinessWorld poll. — PHILIPPINE STARMIGUEL DE GUZMAN

THE PHILIPPINE ECONOMY may have slowed in the fourth quarter of 2022, but still likely hit the upper end of the government’s full-year growth target, according to analysts.

Gross domestic product (GDP) likely grew 6.8% in the October-to-December period in 2022, according to the median forecast of 23 economists polled by BusinessWorld, slower than the 7.6% rise in the third quarter and the 7.8% print in the same period in 2021.

For the full year, the economy may have grown 7.5%, according to median forecasts of economists, matching the high end of the Development Budget Coordination Committee’s (DBCC) 6.5%-7.5% target.

Analysts’ Q4 and full-year 2022 GDP growth estimates

If realized, this would be faster than the 5.7% GDP expansion in 2021 and may be the quickest economic growth since the 8.8% seen in 1976.

It would also mark the second straight year of growth after the record 9.5% contraction in 2020 due to the pandemic.

The poll’s 7.5% growth median estimate for 2022 is higher than the International Monetary Fund’s 6.5% forecast, Asian Development Bank’s 7.4%, and the World Bank’s 7.2%.

The fourth-quarter and full-year 2022 economic performance of the country will be released on Jan. 26, along with December trade data.

Economists said household consumption continued to drive GDP growth in the fourth quarter.

“We expect that the consumption boost from revenge spending continued in the fourth quarter of last year and that this outweighed the negative impact of high inflation on consumer demand,” Philippine National Bank economist Alvin Joseph A. Arogo said.

Inflation accelerated to a 14-year high of 8.1% in December, bringing the full-year average to another 14-year high of 5.8%.

Makoto Tsuchiya, assistant economist at Oxford Economics, said inflation may have peaked in the fourth quarter and weighed on consumer spending.

“We think the sequential momentum has decelerated as the initial reopening boost fades, while the deteriorating external outlook weighed on foreign demand as well as business and consumer sentiment,” Mr. Tsuchiya said in an e-mail.

ANZ Research economist Debalika Sarkar said sustained remittance flows, the improvement in the labor market, and strong demand for household credit boosted private consumption growth.

Cash remittances during the January-to-November period rose 3.3% to $29.38 billion. The unemployment rate stood at 4.2% in November, the lowest in over 17 years or since April 2005.

“The labor market has been resilient, supported by firm Purchasing Managers’ Index (PMI) manufacturing, which has resulted in a significant increase in manufacturing employment. The face-to-face school session that started in August 2022 also contributed to increased economic activities and firm domestic demand,” Suhaimi Bin Ilias, chief economist at Maybank Investment Bank said.

S&P Global Philippines’ PMI data showed factory output in the country expanded to 53.1 in December from 52.7 in November, suggesting a solid improvement in the health of the Filipino manufacturing sector.

A PMI reading above 50 indicates improvement in operating conditions compared with the preceding month, while a reading below 50 shows deterioration.

“The unprecedented external headwinds have dashed hopes of sustaining high GDP growth rates for the local economy which has just caught up with the pre-pandemic level of output,” Romeo Bernardo, an economist from think tank GlobalSource Partners, said.

Shivaan Tandon, Capital Economics’ emerging Asia economist, said the impact of the Russia-Ukraine war was reflected in the elevated inflation in the Philippines and overseas.

“In response to high inflation, partly induced due to the impact of the Russia-Ukraine war on commodity prices, monetary policy has been tightened rapidly, both at home and abroad. Since monetary policy acts with a lag, we are likely to see a sharp deterioration in the domestic demand environment in 2023,” he said.

Emilio S. Neri, Jr., lead economist of Bank of the Philippine Islands (BPI), said the national elections and the government’s COVID-19 vaccination drive allowed the economy to reopen, but investor and consumer confidence was dampened by the Russia-Ukraine war.

“Higher inflation, the sharp rise in policy rates and the weak peso were some of the drags throughout most of the second semester of the year. The reopening of face-to-face classes and pent-up demand managed to outweigh these though,” Mr. Neri said.

Economists expect a slowdown in the Philippine economy this year, amid the risk of a global recession.

“2023, however, appears to be a challenging one, however, as the triple threat of sticky inflation, elevated borrowing costs and high government debt all weigh on growth prospects,” Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, said.

Economic managers are targeting 6-7% GDP growth this year.

“The 6.5% official target and the 7% unofficial targeted of the President will be a tall order as the odds are stacked again the Philippines, all the more with the global economy expected to face a recession,” Mr. Mapa said.

Capital Economics’ Mr. Tandon said the expected global recession this year will weigh on exports from the Philippines, which may grow by only 4.5% this year.

Oxford Economics’ Mr. Tsuchiya said inflation will remain elevated this year, which may continue to reduce consumers’ purchasing power.

“We look for the Philippines economy to grow only 3.1% in 2023 amid mounting headwinds,” he said.

Domini S. Velasquez, chief economist in China Banking Corp., said economic growth is expected to slow to 5.8% in 2023 “as demand momentum dissipates.”

“High interest rates will also be a deterrence to business expansion. However, recent Chinese reopening will be a tailwind for this year, providing much-needed boost against recessions in advanced economies,” she said.

HSBC ASEAN economist Aris Dacanay said consumption, investment and even trade growth are likely to ease this year. He expects GDP growth to average 4.4% this year. 

“Households have dipped into their savings in response to today’s higher cost of living. Thus, consumption should slow in 2023 as households readjust their purchases and start to build their savings back up. History also shows that a high interest environment will likely put a drag on growth by reining in both consumption and investment,” Mr. Dacanay said. — A.M.P. Yraola