PEOPLE visit the Christmas display outside the Meralco Main Office in Pasig, Metro Manila, Philippines, Dec.19, 2023. — REUTERS

By Luisa Maria Jacinta C. Jocson, Reporter

PHILIPPINE economic growth will likely miss the government’s target next year amid external headwinds and risks that could derail the country’s recovery, analysts said.

To support growth, the government will need to focus on ramping up investments and ensuring inflation continues to ease, they added.

“The probability of recession is moderate, but everything must go right, including effective and efficient spending by the government, to achieve the target growth rate range,” Moody’s Analytics Chief Asia-Pacific Economist Steven Cochrane said in an e-mail.

The Development Budget Coordination Committee on Dec. 15 revised its growth target for 2024 to 6.5-7.5%, narrower than the previous 6.5-8% goal.

Most multilateral institutions’ gross domestic product (GDP) growth forecasts for the Philippines next year are below the government’s revised goal.

The World Bank expects Philippine GDP to expand by 5.8% in 2024, while the Asian Development Bank sees growth averaging 6.2% next year.

For its part, the International Monetary Fund (IMF) said the economy could grow by 6% in 2024, while the ASEAN+3 Macroeconomic Research Office sees GDP expanding by 6.3%, and the Organisation for Economic Co-operation and Development has a 6.1% growth forecast for the Philippines next year.

Latest data from the Philippine Statistics Authority (PSA) showed GDP growth averaged 5.5% in the first nine months of the year. To meet the lower end of the government’s 6-7% target for 2023, the economy must expand by 7.2% in the fourth quarter.

In 2022, Philippine GDP grew by a stronger-than-expected 7.6%, the highest since 1976.

Mr. Cochrane said he expects Philippine GDP growth to be below the government’s target in 2024.

“The greatest risks to the forecast that keep our baseline growth rate somewhat modest are the lack of consistency of fiscal spending and its resulting stimulus, the remaining potential for high inflation, and weak external demand for Philippine export products,” he said.

Elevated inflation will continue to be one of the biggest risks to growth next year, IMF Representative to the Philippines Ragnar Gudmundsson said.

“Downside risks could stem from persistently high inflation — globally and locally — that would necessitate further interest rate increases, an abrupt global slowdown that would dampen global trade, and an intensification of geopolitical tensions that could undermine the investment climate,” Mr. Gudmundsson said in an e-mail.

Headline inflation averaged 6.2% in the first 11 months of 2023, faster than 5.6% in the same period a year prior. This was above the central bank’s baseline forecast of 6% and target of 2-4% for 2023.

The Bangko Sentral ng Pilipinas (BSP) sees inflation easing to 3.7% in 2024 and to 3.2% in 2025.   

To help bring down inflation, the BSP raised benchmark borrowing costs by a total of 450 basis points from May 2022 to October 2023. It has since kept the policy rate at a 16-year high of 6.5% for two straight meetings.

BSP Governor Eli M. Remolona, Jr. this month said the Monetary Board sees the need to keep policy settings “sufficiently tight” until inflation settles within target.

“Inflation also has been quite volatile and could continue to be volatile depending upon the path of food-price inflation. Another spike in inflation would slow consumer spending and the broader economy,” Mr. Cochrane added.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said persistently high inflation could dampen consumption.

“Household consumption, which contributes the bulk to spending, has remained in expansion but has seen a gradual moderation in pace. The slower pace of expansion can be attributed to tight budgets amidst still elevated inflation,” he said in an e-mail.

Household spending typically accounts for three-fourths of GDP. In the third quarter, it grew by 5%, the slowest pace in two years.

“Meanwhile, the borrowing binge from the sustained rise in consumer loans will eventually take its toll on the households. We note spending on food items, which accounts for more than 20% of GDP, is now crawling at less than 1%,” Mr. Mapa added.

Weaker trade prospects may also affect growth, Mr. Cochrane said.

“While the risks to the global economy appear to be easing and global trade is slowly edging upward, the rebound in goods exports and service exports — including international tourism — is bound to be slow, at least through the first half of 2024,” he said.

Data from the PSA showed exports of goods and services grew by 2.6% in the third quarter, slower than 13.6% a year ago and 4.4% in the second quarter.

“Net exports, which was a key contributor to the surprise third-quarter GDP, delivering roughly 1.6 percentage points to GDP, will likely revert to weighing on overall GDP as early as the fourth quarter and going into 2024,” Mr. Mapa added.

Security Bank Corp. Chief Economist Robert Dan J. Roces also cited factors that could derail trade recovery next year, such as the slowdown in China.

“This is because the Philippines is a major exporter of goods, and China’s economic woes would lead to a decrease in demand for Philippine exports,” Mr. Roces said in an e-mail.

For the first 10 months of the year, the country’s trade in goods deficit narrowed by 11.9% to $44.07 billion from a year ago. Exports declined by 7.8% to $60.91 billion, while imports fell by 9.6% to $104.97 billion.

“Geopolitical tensions in the region also provide risks, such as the posturing in the South China Sea that could also have a negative impact on the Philippine economy. This is because businesses may be hesitant to invest in the Philippines if they are concerned about the stability of the region,” Mr. Roces added.

Mr. Mapa said higher government expenditures, which helped drive third-quarter GDP growth, may not be sustained in the long run.

“Government spending, which bounced back niftily in the third quarter, will stay in positive territory but we remain unsure whether fiscal authorities can provide the type of support to offset the slowdown in other factors,” he said.

“The 2024 budget is an increase from this year but we remain skeptical we will see a strong double-digit effort in terms of government spending with a rising proportion of expenditure going towards interest expenses,” he added.

Gross capital formation is also unlikely to be a major driver of growth, Mr. Mapa said.

“Capital formation turned negative in the third quarter and dropped to the worst downturn in more than 10 years, excluding of course COVID-19,” he said.

Elevated borrowing costs could also affect investments, he added.

The Philippines is prone to natural disasters such as typhoons and earthquakes, as well as weather phenomena like El Niño, Mr. Roces added, which could affect inflation.

Latest data from Philippine Atmospheric, Geophysical and Astronomical Services Administration showed that a strong El Niño is present in the tropical Pacific and is showing signs of further intensification in the coming months.

National Economic and Development Authority Secretary Arsenio M. Balisacan said that the El Niño weather event could potentially stoke inflation and fuel price pressures.

Despite lingering risks to the outlook, the country could still post modest GDP growth figures in 2024, the analysts said.

“We are cautiously optimistic that the Philippine economy will show decent growth in 2024,” Mr. Roces said. “There are a number of factors that are expected to contribute to the Philippines’ healthy growth in 2024.”

A rebound in consumer spending due to lower interest rates in the second half of the year and improved wages could boost domestic demand in 2024, he said.

“Second, the Philippine government has been working to improve the investment climate in the country, and these reforms should be able to attract more foreign investment to the Philippines,” Mr. Roces added.

Growth next year may be driven by accelerated public investments and improved external demand for exports, Mr. Gudmundsson said.

“Flagship infrastructure projects should notably benefit from stronger foreign direct investments and private sector participation through public-private partnership modalities,” he added.

Mr. Gudmundsson also cited positive spillovers from a resilient US economy and easing financial conditions, as these could support electronics and service exports and a rebound in domestic demand.