Philippine Q3 growth may hit 5.2%

The Philippine economy would probably expand by as much as 5.2% in the third quarter — still below the government’s target — after posting its slowest growth in more than two years a quarter earlier, according to First Metro Investment Corp. (FMIC) and the University of the Asia and the Pacific (UA&P).

“We still see sufficient strength in the economy to get a 5-5.2% year-on-year third-quarter gross domestic product (GDP) growth,” they said in a report.

FMIC and UA&P’s previous forecast was for full-year GDP to hit the lower end of the government’s 6-7% goal. Second-quarter GDP grew by a weaker-than-expected 4.3%, bringing the first-half growth to 5.3%.

The local statistics agency will report third-quarter GDP data on Nov. 9.

Growth in the third quarter would be driven by state and consumer spending and improved jobs, according to the report.

“Elevated National Government spending in the third quarter should provide the stimulus for the quarter, even as we expect a strong rebound in employment and consumer spending starting September,” FMIC and UA&P said.

“We expect a strong rebound in employment by September as firms gear up for the Christmas season, especially in those sectors lashed by the rain,” they added.

FMIC and UA&P said fourth-quarter growth would probably exceed 6% amid a rebound in consumer spending and growth in the industry, manufacturing and service sectors.

“The industry sector expansion will be broad-based, although manufacturing will take the lead,” they said. “The service sector should see domestic and foreign tourism drive trade, transportation and storage, and accommodations and food services starting September.”

“We still see full-year GDP growth at a respectable 5.5% despite the global slowdown,” they added.

FMIC and UA&P expect inflation to remain elevated until October before settling within the Bangko Sentral ng Pilipinas’ (BSP) target by November.

“The inflation outlook has become cloudy,” they said in the report. “We still expect headline inflation to go below BSPs’ 4% target ceiling by November even though we may expect elevated crude oil prices until November.”

Inflation quickened to 5.3% in August — the 17th straight month that it breached the central bank’s 2-4% target — after easing for the past six months. Inflation in the first eight months averaged 6.6%, above the BSP’s 5.8% full-year forecast.

This week, oil companies cut pump prices by 20 centavos a liter for gasoline and diesel, and by 50 centavos a liter for kerosene. This ended the 11-week streak of price increases since July.

Some lawmakers have proposed to suspend taxes on petroleum products amid high pump prices.

“Food prices will likely decelerate as rice harvests come to markets in late September and October, at the same time when we are beginning to see Thai rice prices easing from their August peak,” according to the FMIC and UA&P report.

President Ferdinand R. Marcos, Jr. earlier this month imposed a price ceiling on regular and well-milled rice amid spiraling prices.

Source: Business World

S&P slashes PHL growth forecast

The Philippine Economy will likely expand by just 5.2% this year as high inflation and the lagged impact of the central bank’s aggressive monetary tightening dampen growth, S&P Global Ratings said.

The debt watcher’s latest Philippine gross domestic product (GDP) growth estimate for this year is lower than its 5.9% forecast given in June.

This is also below the government’s growth target of 6-7% for 2023, and much slower than the 7.6% GDP expansion in 2022.

“Growth this year will be weaker than in 2022, but our outlook remains broadly favorable,” S&P said in a report. “We lowered (our forecasts) for Hong Kong, the Philippines, Singapore, Thailand and, notably, Vietnam.”

S&P’s lower forecast comes after Philippine GDP grew by a weaker-than-expected 4.3% in the second quarter. In the first half, GDP expanded by 5.3%.

For 2024, S&P raised its GDP projection to 6.1% from 5.9% previously. However, it lowered its growth forecast for 2025 to 6.2% from 6.6%.

Meanwhile, the credit rater expects inflation to average 5.8% this year, in line with the Bangko Sentral ng Pilipinas’ (BSP) revised full-year forecast.

It also sees inflation easing to 3.2% in 2024, slightly below the BSP’s 3.5% forecast.

According to S&P, core inflation has eased in Asia-Pacific economies, including the Philippines. But recent spikes in international prices of oil and food, especially rice, were reflected in the higher headline inflation in August.

“A fuller picture of the effect will emerge in coming months, depending on the evolution of global prices and government policies (an export ban on rice in India, the world’s largest rice exporter, contributed significantly to the increase in rice prices in Asia),” it said.

The debt watcher also noted that the El Niño weather pattern may likely persist until 2024, which will lead to weaker agricultural activity in the region and potentially higher food prices.

Headline inflation quickened for the first time in seven months in August to 5.3% from 4.7% in July. Meanwhile, core inflation further eased to 6.1% year on year in August from 6.7% in July.

“The recent rise in oil and food prices hasn’t yet led to a renewed worsening of external deficit trends in the Asian economies that ran current account deficits in 2022: India, New Zealand, the Philippines, and Thailand. Earlier declines in oil and commodity prices helped to reduce those deficits,” S&P said.

In the first semester, the country’s current account deficit stood at $8.2 billion (-4% of GDP), 32.2% lower than the $12.1-billion deficit (-6.1% of GDP) in the same period last year.

The BSP projects the current account deficit to reach $11.1 billion (-2.5% of GDP) for this year, before narrowing to $10.3 billion (-2.1% of GDP) in 2024.

“In New Zealand, the Philippines, and Thailand, rising tourism revenues are also making a difference. However, the new rise in oil and food prices will put pressure on the external deficit data in coming months,” the credit rater said.

Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said the Philippines cannot rule out the debt watcher’s lower growth outlook for this year.

“We are a bit more optimistic than S&P though: while we think that making up for public sector underspending in the second quarter will be an uphill climb, we are likely to see improvements in government spending in the second half of 2023 to bring growth to the 5.5% to 6% range,” Mr. Neri said in a Viber message.

Aside from higher interest rates, he noted that growth has also been dampened by persistent inflation, government underspending and possible erosion of investor confidence due to geopolitical issues.

George N. Manzano, an economist at the University of Asia and the Pacific, said it will not be easy for the Philippines to achieve its 6-7% GDP growth target this year.

“The economy has to grow by 6.6-6.7% in the second half to hit the lower bound 6% government target,” he said.

“At the rate that inflation is increasing, with the food and energy prices, it may hamper demand and investment, especially if the BSP will hike interest rates further in the year. Thus, the burden will be on government spending to spur growth,” he added.

Last week, the BSP kept its key interest rate for a fourth straight meeting at 6.25%. From May 2022 to March 2023, the Monetary Board raised borrowing costs by 425 basis points (bps).

In the report, S&P expects the BSP’s policy rate to reach 6.5% this year. This assumes that the Monetary Board may still hike by 25 bps in the fourth quarter.

By end-2024, S&P expects the Monetary Board to cut its key rate to 5.75%.

The credit watcher also noted that they do not see any policy easing in the near term due to challenges in inflation and uncertainties from the US Federal Reserve.

“Most Asia-Pacific central banks consider the recent currency weakening as manageable but given renewed increases in global energy and food prices, they would be reluctant to see large currency depreciation stoke so-called imported inflation,” it said.

BSP Governor Eli M. Remolona, Jr. earlier said that the Monetary Board may raise policy rates again at its next meetings on Nov. 16 and Dec. 14 if inflationary pressures persist.

Source: Business World

ADB lowers 2023 PH growth forecast

Philippine economic growth will fall short of target this year and the next owing to persistent inflation and global headwinds, the Asian Development Bank (ADB) said on Wednesday.

In a September update to its outlook for the region, the Manila-based lender lowered its 2023 gross domestic product (GDP) growth forecast for the country to 5.7 percent from 6.0 percent.

That for next year was kept at 6.2 percent.

Both projections fall below the government's 6.0- to 7.0-percent target for 2023 and 6.5 to 8.0 percent for 2024 to 2028.

"We have downgraded our forecast for this year," ADB regional cooperation officer Dulce Zara said during the launch of the ADB report.

"This is mainly due to the weakening in domestic demand, compared with last year's performance with the reopening of the economy," she added.

The country's prospects remain positive, however, with private consumption and

investment expected to continue underpinning economic growth.

Reduced inflationary pressures next year also bode well for domestic demand, the ADB said.

It noted that public spending was likely to accelerate next year and that infrastructure expenditures would also remain positive given projects in the pipeline.

The proposed budget for next year is also higher, the lender said, with social services accounting for nearly 40 percent of the total outlay. The government was also said to be mobilizing more resources to support investments without breaching fiscal consolidation targets.

Private consumption, while expected to ease from 2022's rapid growth, was forecast to remain strong given low unemployment, higher remittances and a cut in personal income tax rates earlier this year.

Indicators of future economic activity, however, were said to be mixed. In particular, the purchasing managers' index signaled a contraction in August but manufacturers remained upbeat about prospects for the year ahead.

Reforms, including those that opened up previously restricted sectors, will boost private investment, the ADB said, complementing the country's ratification of the Regional Comprehensive Economic Partnership.

The regulatory framework for public-private partnerships is also being strengthened, it noted.

Services, which account for about 60 percent of GDP, are expected to continue posting healthy growth. Retail, in particular, will benefit from private consumption while rising tourist numbers would boost hotels, restaurants, transportation and other related sectors.

Inflation forecasts for this year and the next were maintained at 6.2 percent and 4.0 percent, respectively, but the pace of easing could slow due to the impact of the El Niño weather pattern and renewed global supply constraints.

This will likely prompt monetary authorities to keep key interest rates unchanged for the rest of 2023 before cutting next year, the ADB said.

The current account deficit, meanwhile, was forecast to narrow this year on the back of strong service exports and remittances. Merchandise exports, meanwhile, will likely remain subdued due to weakness in markets such as the United States, Japan and China.

The ADB warned, however, that downside risks were clouding the outlook for the Philippines.

"Risk factors include a sharper-than-expected slowdown in major advanced economies, heightened geopolitical tensions and global commodity prices above expectations," it said.

"An intensified and prolonged El Niño, other severe weather disturbances and a continuation of the Russian invasion of Ukraine could elevate inflationary pressures," the ADB added.

Source: The Manila Times