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  • Writer's pictureZiggurat Realestatecorp

PH growth forecasts lowered

Philippine growth forecasts are being revised downwards following the second quarter's worse-than-expected slowdown of 4.3 percent.


"The latest growth outturn shows that the Philippines' economy was weaker than we had originally anticipated," BMI Country Risk & Industry Research said in a report on Friday.


The April-June result was well below the consensus forecast of 6.0 percent, moderately lower than the first quarter's 6.4 percent.


Year-to-date growth subsequently slowed to 5.3 percent, much lower than the government's 6.0- to 7.0-percent target for 2023.


The Fitch Group subsequently revised its full-year growth forecast for the Philippines to 5.3 percent from 5.9 percent, saying that "the poor showing in headline growth was in large part due to sluggish investment."


BMI noted a significant deceleration in gross fixed capital formation, which dropped markedly from 10.9 percent in the first quarter to 3.9 percent.


It also described a drop in government spending — which contracted by 7.1 percent after growing 6.1 percent three months earlier — as a hindrance.


The "silver lining was the external sector" as exports recorded a stronger-than-expected pickup of 4.1 percent from 1.0 percent.


BMI said the decline in state spending was likely affected by base effects as national and local elections were staged last year.


It noted that officials had acted to "address this weakness" via orders to implement catch-up plans and accelerate or even front-load project and program implementation.


'Three major reasons'


Still, it said "the big picture is that the economy will remain lackluster due to three major reasons."


First, tight credit conditions are expected to continue weighing on domestic activity.


"While we think that inflation will continue to ease over the coming months, we think that the BSP (Bangko Sentral ng Pilipinas) will leave its key policy rate at 6.25 percent until the first half of 2024 and only loosen policy gradually over the course of next year," it said.


"This is because the peso would be susceptible to further weakness if the central bank were to loosen monetary policy prematurely."


The delayed effects of aggressive monetary tightening are also expected to negatively impact business sentiment.


Second, Philippine exports — despite having risen for the last two months based on latest data — will likely be constrained by subdued overseas demand.


The economies of the United States and Japan, which account for around 30 percent of Philippine exports, are expected to be "very weak." China, which takes in 15 percent of outbound shipments, is also seeing a recovery slowdown.


Lastly, BMI said the Philippine agriculture would "falter" for the rest of the year given the damage caused by recent typhoons and the impact of the El Niño weather pattern, which is expected to intensify in the fourth quarter up to the first quarter of next year.

"This development is poised to have negative implications for the Philippine agricultural sector, an integral component that typically contributes around 10 to the nation's overall output," it said.


Risks to the Philippine outlook, BMI said, are skewed toward the upside as the trade cycle downturn is expected to persist up to the end of the year.


"However, the global economy has proven to be more resilient than we have previously anticipated," it added.


"If global growth outperforms our expectations, this would bode well for Philippine exports."


2023, 2024 forecasts revised


Malaysia's Maybank, meanwhile, noted that domestic demand was losing steam and that growth in all economic sectors had slowed, among others, as it revised its 2023 and 2024 forecasts for Philippine growth.


"With the lower-than-expected growth in 2Q 2023 (the second quarter of 2023), we adjust our 2023 growth forecast lower to +5.2 percent from +5.5 percent, and our 2024 growth forecast higher to +6.5 percent from +6.2 percent," Maybank Research Pte Ltd. said in a report on Thursday.


Domestic demand, it pointed out, grew by a slower 3.0 percent from 7.2 percent as private consumption growth eased to 5.5 percent from 6.4 percent and that for gross fixed capital formation decelerated to 3.9 percent from 10.9 percent.


Along with the 7.1-percent decline in government consumption, Maybank also said that a BSP survey found more respondents citing constraints due to higher interest rates, "which we expect to continue to dampen business sentiment in coming quarters."


While net external demand may have improved with export growth having picked up by 4.1 percent from 1.0 in the first quarter, imports of goods and services were said to be "almost stagnant" with growth of just 0.4 percent from 4.7 percent three months earlier.


"While we expect the government to support domestic demand growth in 2H 2023 (the second half of 2023) with the push to expedite government programs and projects, the economy continue[s] to face headwinds from elevated inflation and interest rates as well as sluggish external demand," Maybank said.


Source: Manila times

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