Philippines seen to miss economic growth targets for 2023, 2024 - analysts

The Philippines is unlikely to meet its economic growth targets for last year and for 2024 due mainly to uncertainties both locally and abroad, such as inflation and the movement of policy rates, First Metro Investment Corp. (FMIC) said Thursday.

In a briefing in Makati City, FMIC said it expects the country’s gross domestic product (GDP) to grow by 6.0% in 2024, slower than the government’s target range of 6.5% to 7.5%. It also expects 2023 growth at 5.5%, which is slower than the 6.0% to 7.0% target range.

The official fourth-quarter and full-year 2023 figures are scheduled to be released by the Philippine Statistics Authority (PSA) on January 31.

“This year, we continue to anticipate external headwinds — global growth outlook remains subdued,” FMIC president Jose Patricio Dumlao said.

“While headline inflation has softened in many countries, driven by the decline in food and energy prices, core inflation remains a concern. External uncertainties such as the movements of the Fed and a potential sharper slowdown in China could drag on growth,” he added.

In the same briefing, University of Asia and the Pacific (UA&P) economist Victor Abola said that GDP growth may not meet the government’s target unless more funds come in from external sources.

“I think we will not be able to meet the 6.5 (percent) unless foreign investments come in, and so far in 2023, foreign investments have actually been down significantly,” he said.

Latest data available from the Bangko Sentral ng Pilipinas (BSP) shows that foreign direct investment (FDI) inflows stood at $655 million in October 2023,  29.6% lower than the same month in 2022. Year-to-date inflows fell 17.5% to $7.921 billion.

The 2024 outlook, however, still indicates faster growth than expected for 2023, as Abola said inflation is expected to decelerate to an average of 3.8% this year after the 6.0% average in 2023 as the December print fell to 3.9%, the slowest since February 2022.

Should FMIC’s projections be realized, the Philippines would miss its economic growth targets for both 2023 and 2024. It surpassed the 6.5% to 7.5% target in 2022, when growth was recorded at 7.6%.

BSP to ease policy

According to FMIC executive vice president and investment banking group head Daniel Camacho, policy rates could be cut by as much as 125 basis points this year, starting in the second half.

“Our fearless forecast for year-end is a reduction of 75 to 125 basis points across the curve. We see a softening of rates as inflationary pressure eases,” he said.

“We do not foresee a cut in BSP in the first half, but possibly one or two in the second half of the year, which will further push rates downwards,” he added.

The central bank has already raised key policy rates by 450 basis points since May 2022 in a bid to tame inflation. The benchmark target reverse repurchase (RRP) rate is currently at a 16-year high of 6.5%.

Abola said the first BSP rate cut—possibly 25 basis points—could happen in June, depending largely on the US Federal Reserve.

Abola’s remarks mirror those made by HSBC ASEAN economist Aris Dacanay, who earlier in the week said the BSP is largely expected to move in lockstep with the Fed when it comes to policy easing, both in terms of timing and in intensity. —VBL, GMA Integrated News