Philippine economic managers slash inflation outlook for 2023

The Marcos administration’s economic managers have lowered their inflation outlook for 2023, taking into account the four straight months of consistent decline in inflation so far this year.

At a press conference following the 185th inter-agency Development Budget Coordination Committee (DBCC) on Friday, Budget Secretary Amenah Pangandaman revealed that the economic managers decided to slash their inflation assumption for this year to 5% to 6% from their previous outlook of 5% to 7% announced in April. 

Pangandaman, who read the DBCC’s joint statement, said the narrowing of the inflation forecast for this year was “partly due to a consistent slowdown in inflation over the past four months.”

The DBCC, chaired by the Budget chief, is composed of the secretaries of National Economic and Development Authority (NEDA), Finance (DOF), as well as the governor of the Bangko Sentral ng Pilipinas (BSP).

The downwardly revised outlook, however, is still above the government’s target ceiling of 2% to 4% inflation.

Inflation or the rate of increase in the prices of goods and services in the Philippines continued its downtrend in May, clocking in at 6.1% from 6.6% in April and bringing the year-to-date rate to 7.5%.

This is the fourth time that inflation dipped from a peak of 8.7% in January and its lowest since July 2022’s 6.4% rate.

“It is expected that the inflation rate will return to the target range of 2% to 4% by 2024 and 2028 as the administration, through the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO) provides proactive measures to address the primary drivers of inflation,” Pangandaman said.

“This, together with appropriate monetary policy actions of the BSP, will help ensure a return to the inflation target over the policy horizon,” she added.

GDP growth projections

The economic team, meanwhile, maintained their gross domestic product (GDP) growth outlook for 2023 at 6% to 7%, as well as their projection of  6.5% to 8% economic growth for 2024 to 2028.

The economic manager’s GDP outlook also considered the 6.4% growth seen in the first quarter of 2023, which outpaced the growth in other developing and emerging economies, such as Indonesia, China and Vietnam.

The DBCC, according to Pangandaman, has already taken into account the risks posed by El Niño and other natural disasters, global trade tensions, and value chain disruptions, among other factors.

“The DBCC is confident that the country can withstand these risks and achieve upper-middle-income status in the next two years through the implementation of near- and medium-term strategies, such as ensuring timely and adequate importation, providing preemptive measures to address El Niño, strengthening biosecurity, enhancing agricultural productivity, and pushing for legislative reforms including the Livestock, Poultry, and Dairy Competitiveness and Development Act, among others,” she said.

'Slug effects'

Despite the slower inflation assumption, NEDA Secretary Arsenio Balisacan explained that the economic team maintained the 6% to 7% growth outlook for this year because “we do recognize, on one hand, the external environment to date still is still not as good as we would like to.”

“On the other hand, the performance of the economy in the first quarter is much more improved than what most of us anticipated but there are also the slug effects of previous actions to tame the inflation, such as high interest rates and those are expected to take their course for the rest of the year,” Balisacan said.

Since May last year, the policy-setting Monetary Board of the BSP has raised interest rates by a total of 425 basis points to temper rising inflation.

Monetary policy or interest rates are among the tools used by central banks to stabilize inflation through controlling money supply by raising borrowing costs.

Higher borrowing costs could make consumers and businesses spend less, therefore reducing economic activity or lowering demand and eventually lowering prices.

“Putting all these different factors together we believe the 6% to 7% [growth] is very much manageable,” Balisacan said.

Exchange rate

For the peso versus dollar exchange rate, the DBCC is expecting the local currency to settle within the P54:$1 to P57:$1 range for 2023.

“The peso will continue to be supported by structural foreign exchange inflows and ample international reserves,” Pangandaman said.

Growth in exports and imports of goods and services was also revised down to 1% and 2%, respectively, from the earlier peg respective growth of 3% and 4% growth amid expected tempered global demand and trade prospects.

“These are expected to stabilize at 6% and 8%, respectively, in the medium term,” Pangandaman said.

Data from the Philippine Statistics Authority showed the country’s total external trade declined by 18.6% to $14.34 billion in April from $17.6 billion in the same period last year as both exports and imports posted drops of 20.2% and 17.7%, respectively.

The balance of trade in goods, the difference between the value of exports and imports, stood at a deficit of $4.53 billion, down 14.9% from the $5.321-billion trade gap in April last year.—LDF, GMA Integrated News