Maybank Investment Banking Group lowered its growth forecast for the Philippines this year to 6.5 percent (from its January forecast of 7 percent), which is still within the target band of the government of 6.5 to 7.5 percent in 2022.
After fearlessly forecasting the Philippines gross domestic products (GDP) growth in January to 7 percent, Maybank Investment Banking Group dropped it to 6.5 percent, which is still within the government’s forecast of 6.5 to 7.5 percent target this year. This is faster than the 5.7 percent expansion in 2021.
This forecast amid a possible recession in the United States, China and the European Union, said a Business World report.
Despite the downgrade, Maybank said the Philippine GDP growth will be the second fastest among the Association of Southeast Asian Nations (ASEAN) member countries for this year, after Vietnam’s 6.9 percent.
“We do see a rising probability of a recession because of a series of factors like the Russia-Ukraine war which will likely cause Europe to go into recession… China, US, and the EU are major export destinations for ASEAN-6,” Maybank economist Ju Ye Lee said.
Lee said a 1 percent decline in China’s GDP growth “inevitably results in a decline in GDP growth for ASEAN,” although mainly Singapore, Thailand, and Malaysia.
“But if you look at the impact on the Philippines or Indonesia, they are more domestic oriented economies. The impact will likely be softer,” she said.
Maybank also lowered its 2022 growth projection for ASEAN-6 to 5 percent, from 5.4 percent previously.
For 2023, the Philippines is expected to grow by 6.2 percent, slightly below the government’s low-end target of 6.5-8 percent. This is also higher than the average 4.6 percent GDP growth for ASEAN-6 expected in 2023.
Meanwhile, Maybank raised its average inflation forecast for the Philippines to 5.3 percent, from its January projection of 2.8 percent, as it expects inflation to peak in the third quarter.
Inflation rose to a near four-year high of 6.1 percent in June, the third straight month it settled above the BSP’s 2-4 percent target band. Year to date, inflation stood at 4.4 percent, still below the BSP’s 5 percent average inflation forecast.
“We think that inflation is likely going to peak in the third quarter because there are signs of easing commodity prices, as well as easing supply chain disruptions,” she said.
“But we don’t expect inflation to fall off quickly. The high inflation will likely stay for a while because supply disruptions, while they have eased, haven’t improved back to pre-pandemic levels.”
If realized, inflation in the Philippines will be the third highest in the ASEAN region, next to 6.3 percent for Thailand and 5.5 percent for Singapore.
Maybank said it expects Philippine inflation to ease to 3.9 percent in 2023, although this will still be second highest in the ASEAN after Malaysia’s 4.1 percent.
ASEAN food inflation at 6.5%
It noted food inflation in ASEAN stood at 6.5% in June, still modest compared with the European Union (10 percent) and the US (9.7 percent).
The Philippines, a net importer of food, remains below the average at 6 percent.
“We think that food prices have reached its peak. We are seeing signs of an easing, partly because Russia has resumed exports of some of its fertilizers,” Lee said.
“Also, we are seeing the softening of oil prices. Because oil prices and food prices are very strongly correlated, a weakening global demand would also help ease pressures on some of these food commodities,” she added.
BSP is most aggressive central bank
Also, Maybank said the BSP will be the most aggressive central bank in the ASEAN region as it is expected to increase its benchmark interest rates to a total of 200 basis points (bps) by yearend.
“They are likely going to front load the interest rate hikes this year and likely keep policy rate unchanged in 2023, whereas in the rest of ASEAN, we are mostly expecting a 75-bp hike in Indonesia, Malaysia, as well as Thailand,” Lee said.
The BSP has increased its benchmark interest rates by a total of 125 bps so far this year. The Monetary Board is expected to raise rates again at its next meeting on Aug. 18.
Maybank has its boots firmly on the ground in ASEAN. From a single-market entity, Maybank Investment Banking Group is today a 10-market ASEAN leader, present in Malaysia, Singapore, Thailand, Indonesia, Vietnam, the Philippines, Hong Kong, India, the United Kingdom and the United States of America.
It has become the voice of the ASEAN opportunity as a promoter and deal- maker for ASEAN businesses and a thought leader for sustainability in the region.
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