Despite bright and rosy projections by the Marcos economic team, the economic growth of the country would even shrink from 7.6 percent in 2022 to just 4.1 percent this year because of global headwinds and a continued elevated inflation
The country’s economic growth this year would shrink to 4.1 percent compared to 7.6 percent in 2022 because of global headwinds and a continued elevated inflation that would dampen domestic demand, said Oxford Economics.
“After registering respectable growth of 7.6% in 2022, we expect the Philippines’ economy to slow to 4.1% amid global headwinds, elevated inflation, and a fading reopening boost. With monetary tightening set to continue, the economy could use a hand from the fiscal side, but chances are slim,” Makoto Tsuchiya, assistant economist at Oxford Economics, said in a research note released on Wednesday.
Oxford Economics’ gross domestic product (GDP) projection is well below the government’s 6-7 percent target, Business World reported.
It expects GDP to expand by 4.5 percent next year, still outside the 6.5-8 percent target set by the government.
“We expect GDP growth to slow materially amid softer external demand as the global economy enters a recession, led by weakness in major advanced economies. We don’t think China’s reopening will be enough to offset this weakness, with the recovery in private consumption there likely to be lackluster,” Tsuchiya said.
There is a widely anticipated global recession this year, with the World Bank projecting global growth to slow to 1.7 percent.
Rising inflation is also seen to “substantially” slow the Philippine economy, Tsuchiya said.
In January, inflation soared to a 14-year high of 8.7 percent, marking the 10th consecutive month inflation was above the Bangko Sentral ng Pilipinas’ (BSP) 2-4 percent target range.
The central bank also raised its average inflation forecast to 6.1 percent this year from 4.5 percent previously.
BSP to continue policy rate hikes
Oxford Economics said that the BSP will continue to hike rates to tame inflation and keep in step with the US Federal Reserve.
“Elevated inflation means policy makers will not be able to react by lowering interest rates. Indeed, we expect tightening to continue for at least the next two meetings, albeit at a slower pace — in contrast to other Asian central banks who can afford to pause,” Tsuchiya said.
Oxford Economics also cited the lack of policy support as a factor contributing to slower growth this year.
“We think significant support is unlikely given limited policy space on both the monetary and fiscal front. Ideally, fiscal policy would take over the burden of supporting growth. But debt accumulated during the pandemic era means the focus is instead on fiscal consolidation,” Tsuchiya said, noting that the Philippine government may adopt a more restrained approach in spending.
Oxford Economics expects the budget deficit will reach 2.7 percent of GDP by 2028, better than the 3 percent projection given by the Development Budget Coordination Committee (DBCC).
The government projects the fiscal deficit to hit 6.9 percent of GDP or around P1.5 trillion this year. In the 11 months to November, the budget deficit shrank by 7.2 percent to P1.24 trillion.
However, Oxford Economics said the debt-to-GDP ratio may remain elevated at 61.1 percent by 2025, higher than the 60 percent target set by the government in the same period.
The country ended last year with a debt stock at 60.9 percent, better than the 63.7 percent seen in end-September but still above the 60 percent threshold considered manageable by multilateral lenders for developing economies.
“If economic growth turns out to be stronger than we expect, then government revenue would likely be higher, allowing higher government spending. This would in turn lift the economic outlook further, without necessarily worsening the fiscal balance. However, the government will need to be mindful of keeping public debt levels under control,” Tsuchiya said.
Tags: #Phleconomicgrowth, #OxfordEconomics, #elevatedinflation, #globalheadwinds