PHILIPPINE ECONOMIC GROWTH is likely to further slow this year and in 2024, amid “strong” external headwinds and the end of “revenge spending,” GlobalSource Partners said in a report.

GlobalSource said it cut its Philippine gross domestic product (GDP) forecast to 5.2% for this year from 5.5% previously. It also slashed its GDP forecast for 2024 to 5% from 5.8% previously.

Both projections are below the government’s 6-7% target this year and the 6.5-8% goal in 2024.

“Economic growth is slackening. On one hand, multiple headwinds continue to buffet the economy — from weak external growth and tight global financial conditions to volatile commodity prices and high local inflation,” GlobalSource analysts Romeo L. Bernardo and Maria Christine Tang said in a report dated Aug. 28.

“On the other hand, the tailwind from post-pandemic revenge spending is losing force and, here as elsewhere, the expected swift recovery of Chinese tourism is not happening,” it added.

The Philippine economy expanded by a weaker-than-expected 4.3% in the second quarter, its slowest growth in over two years.

For the first half, GDP growth averaged 5.3%. The economy would have to grow by 6.6% in the second half to hit the government’s target.

GlobalSource said the Philippine economy will continue to face “strong” headwinds going into 2024, amid a slowdown in major trading partners, relatively tight financial conditions and fiscal constraints

“Although we expect monetary easing to start next year, the absence of new growth drivers beyond remittances and service exports compels a significant reduction in our (2024) GDP growth forecast from 5.8% to 5%,” GlobalSource said.

An economic rebound will depend on the government’s ability to implement its catch-up plan for spending. The weak second-quarter growth was partly blamed on the 7.1% contraction in government spending.

“We think that under the supervision of economic managers, spending will improve, although not fully and perhaps with potential costs to spending quality,” it added.

Other risks to the Philippine outlook include a potential recession in the US, a sudden spike in inflation due to food supply issues, geopolitical tensions and other shocks, GlobalSource said.

It kept its inflation forecast for this year at 5.5%, while lowering the 2024 projection to 3.3% from 3.5% previously.

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

GlobalSource expects the Bangko Sentral ng Pilipinas (BSP) to start cutting rates next year, “possibly leading to more upbeat sentiment.”

The BSP earlier this month extended its policy pause for a third straight meeting, keeping its benchmark interest rate at a near 16-year high of 6.25%.

“The odds of a rate hike will be higher if the sharp currency depreciation comes alongside higher-than-expected headline inflation, reflecting currently high crude oil prices and exacerbated by spikes in prices of key food items, notably rice, and higher-than-expected wage increases,” it said.

However, GlobalSource said the current rate pause is likely to extend through the end of 2023. It noted the BSP is awaiting more definite signals from the US Federal Reserve that it is ending its tightening cycle and beginning its rate cuts.

“Ahead of any Fed cut, the BSP may also consider another cut in banks’ reserve requirement ratio (RRR) if the inflation outlook turns benign. BSP Governor Eli M. Remolona reportedly said that he would like to see the RRR eventually fall to 5% from the current 9.5%,” it added.

In June, the BSP cut the RRR for big banks and nonbank financial institutions with quasi-banking functions by 250 basis points (bps) to 9.5%.

It also reduced the ratio for digital banks by 200 bps to 6% and by 100 bps for thrift banks, and rural and cooperative banks to 2% and 1%, respectively. — Luisa Maria Jacinta C. Jocson