Moody's Analytics raised its growth projection for the Philippines to 5.8% this year from 5.4% it gave in January, as strong demand for electronics could spur export growth in Asia-Pacific economies.
It expects the Philippines to be the third-fastest performing economy in the region this year after India (6%) and Vietnam (6%). It is also followed by China (5%) and Indonesia (4.9%).
However, Moody’s Analytics’ forecast is below the government’s full-year gross domestic product (GDP) growth goal of 6.5-7.5% this year.
In a report dated Feb. 21, Moody’s said the Philippines has “shown remarkable resilience thanks to electronics exports, relatively strong domestic demand, government spending and remittances.”
“The Philippines and Taiwan enjoyed rapid growth at year’s end,” it said. “In the Philippines, the post-pandemic recovery continues, helped by record overseas remittances in value terms last year that fueled strong domestic demand.”
The Philippine economy grew by 5.6% in 2023, falling short of the government’s 6-7% target and slower than 7.6% in 2022.
In the report, Moody’s said better demand for electronics would lead to rising exports globally in the second half, which will boost economic growth in the Asia-Pacific (APAC) region.
“Exports will improve alongside global growth in the second half of this year, and this will boost APAC economies,” it said. “Improved demand for electronics and high-performance chips needed for AI (artificial intelligence) will underpin rising exports.”
The research unit also sees higher demand for cars, car parts and pharmaceuticals.
“Further, as central banks finally loosen monetary policy, lower interest rates will encourage domestic spending and investment across much of Asia,” it said.
Inflation averaged 6% in 2023, marking the second straight year that it breached the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target.
To tame inflation, the BSP hiked borrowing costs by 450 basis points (bps) from May 2022 to October 2023, bringing the key rate to a near 17-year high of 6.5%.
Central bank officials have said inflation might still pick up in the second quarter, prompting the Monetary Board to keep borrowing costs steady until a sustained downtrend in inflation is seen.
“With elections now completed in Thailand, the Philippines, Taiwan and Indonesia, there is a good chance that fiscal policy will remain stimulative, at least for a short while, as new administrations execute their policies,” Moody’s Analytics said.
It expects the economy to expand by 5.8% in 2025 before picking up further to 6.3% in 2026. However, both forecasts are below the government’s 6.5-8% target.
It sees inflation settling at 3.4% this year, before it slows further to 3% in both 2025 and 2026.
Source: Business World