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  • Writer's pictureZiggurat Realestatecorp

Inflation expected to dampen growth

An investment house executive expects the country's growth to be modest this year, weighed down by inflationary pressures and high interest rates.

Eduardo Francisco, president of BDO Capital and Investment Corp., projected a 5.5 to 6.0 percent gross domestic product (GDP) for 2023, as growth slows down slightly for the rest of the year.

Guesting in the "Business and Politics" program on SMNI hosted by The Manila Times Chairman and CEO Dante "Klink" Ang 2nd, Francisco said higher inflation and interest rates toned down the Philippines' upbeat outlook.

The government projected a growth outlook of 6.0 to 7.0 percent, citing risks from geopolitical and trade tensions, a possible global economic slowdown, and weather disturbances.

"I'm still a very good believer in the Philippines," Francisco said.

"I believe that with our OFWs (overseas Filipino workers), if we just create jobs for them, they will come home rather than work abroad," he said.

He said the country "has a lot of potential, we just have to work together ... this government is trying its best, so, we, as citizens, are also trying and hop[ing] for the best."

"I was with senior BOI (Board of Investments) officials,and the nice thing is that they mentioned that FDI (foreign direct investment) is significantly up. So, that's a good sign that FDI is up because we need more investments," he said.

Companies in general are doing very well, posting significant gains and reporting record profits as compared to last year, he said.

"The only thing that we are worried about is inflation and increasing interest rates. That's the one causing some of the dampening of the optimism because now consumer spending might slow down and interest rates might go up," Francisco said.

He forecast full-year inflation to settle to 4.0 to 5.0 percent, higher than the 2.0 to 4.0 percent target of the Bangko Sentral ng Pilipinas, but within the Development Budget Coordination Committee's (DBCC) assumption of 5.0 to 7.0 percent.

"The BSP has always said that they want 2.0 to 4.0 percent inflation. Maybe that's a little too optimistic, but on one hand, we really see it going down," Francisco said.

"So, even if it goes down to below 7.0 [percent] and hopefully by the third quarter, 6.0 and 5.0 [percent]. If we average, maybe even 4.0 to 5.0 [percent], from the private sector, we'll be happy," he said.

Francisco said the monetary side has been doing enough, stressing that change should happen on the non-monetary side already.

Other economists agreed that inflation and interest rates are stifling economic growth.

Rajiv Biswas, Asia-Pacific chief economist at S&P Global Market Intelligence, said the country is expected to maintain strong annual GDP growth this year, but rising interest rates in 2022 and early 2023 put a brake on the momentum in interest rate-sensitive sectors of the economy.

The El Niño has also heightened the downside risks of inflation, said Biswas.

Michael Ricafort of Rizal Commercial Banking Corp. said higher inflation would slow down economic recovery, since purchasing power or disposable income would shrink because of increased spending for oil, energy and other global commodities, as well as to pay for higher prices of affected goods and services.

Inflation has slowed for a third straight month in April as food and non-alcoholic beverage prices fell. Similarly, core inflation, which excludes volatile food and energy items, declined to 7.9 percent from 8.0 percent in March.

Year-to-date headline inflation stood at 7.9 percent while core inflation was at 7.8 percent.

According to the central bank, the balance of risks to the inflation projection for 2023 and 2024 remains substantially skewed to the upside.

Despite the recent slowdown in food inflation, the BSP expects the potential impact of supply shortages to affect the growth outlook, through higher transport fares, rising electricity rates and above-average wage hikes.

A slower-than-expected global economic recovery remains the principal issue that might trigger inflation.

The BSP confirmed that the Monetary Board would consider the current inflation data, as well as the impending GDP release for the first quarter of 2023, during its monetary policy meeting on May 18.

The BSP expects monthly inflation to remain high over the near term before gradually decelerating back to the 2.0 - 4.0 percent target range toward end-2023.

Source: Manila Times

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