By Keisha B. Ta-asan, Reporter
THE “CONTINUED NORMALIZATION” of post-pandemic mobility will help the Philippine economy expand within the government’s 6-7% target this year, but slower growth is likely in 2024, the Bangko Sentral ng Pilipinas (BSP) said.
“GDP (gross domestic product) growth is projected to settle within the DBCC’s (Development Budget Coordination Committee) target of 6-7% for 2023, but economic headwinds could result in slower GDP growth in 2024,” the BSP said in its latest Monetary Policy Report (MPR).
“The full-year growth forecast for 2023 was adjusted upward from the previous MPR. Meanwhile, the growth forecast for 2024 is lower compared to previous round, reflecting weaker global prospects and the impact of cumulative policy rate adjustments of the BSP,” it added.
While the central bank does not give its exact growth forecasts, the DBCC targets 6.5-8% GDP growth in 2024.
According to the central bank, the economy will be “driven by growth in the industry sector as manufacturers signal increased production plans as the economy reopens further.”
Based on data from the Philippine Statistics Authority (PSA), the service sector expanded by 9.8% in the fourth quarter last year, while the industry sector grew by 4.8%. Annually, services jumped by 9.2%, and industry expanded by 6.7%.
Better labor market conditions, higher demand for tourism, and greater economic activity due to the resumption of face-to-face classes are seen to boost growth in the services sector, the BSP said.
“Moreover, the implementation of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, Financial Institutions Strategic Transfer (FIST) Act, and the second tranche of the reduction in personal income taxes could help further bolster the domestic outlook in 2023-2024,” it added.
Meanwhile, the overall balance of supply and demand conditions, as reflected by the output gap, is expected to “remain broadly neutral” in the near term.
“Estimates from the BSP’s Policy Analysis Model for the Philippines (PAMPh) indicate that the output gap is estimated to be slightly positive in early 2023, reflecting the sustained economic expansion in 2022,” the central bank said.
The economy grew by 7.6% in 2022, exceeding the government’s 6.5-7.5% target, and the fastest growth since 1975.
“Thereafter, the output gap is seen to remain in broadly neutral territory as the impact of policy interest rate adjustments takes hold on the economy. A projected slowdown in global growth owing in part to tightening monetary conditions across countries could likewise dampen aggregate demand,” the BSP said.
The Monetary Board last week increased the benchmark policy rate by 50 basis points (bps) to 6%, the highest in nearly 16 years. Rates on the overnight deposit and lending facilities were also increased to 5.5% and 6.5%, respectively.
According to analysts, higher interest rates could drag economic growth slower this year.
“Rate hikes always impact growth not just in the short run but in the medium term as it caps investment outlays and limits the increase in potential output,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.
“Such moves are designed to combat mainly demand side pressures and will only help bring down prices by snuffing our growth momentum,” Mr. Mapa said.
He added that the Monetary Board will still need to hike borrowing costs this year as inflation remains high, while fiscal authorities deploy more measures to improve local supply.
BSP Governor Felipe M. Medalla last week said the Monetary Board may deliver a 25-bp or 50-bp rate increase at its next meeting on March, with inflation as the primary concern.
Inflation, which is now running at a 14-year high of 8.7% in January, is expected to average by 6.1% this year before easing to 3.1% in 2024.
Monetary authorities, which have raised rates for a total of 400 bps since May 2022, will next meet on March 23.
“However, it is still possible to achieve the economic/GDP growth targets as the economy reopens further towards greater normalcy,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.
According to Mr. Ricafort, the robust economic recovery could still “overshadow” the risks of higher inflation, rising interest rates, and a looming global recession.