The government of President Ferdinand R. Marcos, Jr. cut economic growth targets this year and in 2025 as elevated prices and high interest rates crimp household spending.
The economy is now expected to grow by 6-7% this year from the 6.5-7.5% estimate given in December, National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan told a news briefing at the Presidential Palace on Thursday.
The gross domestic product (GDP) growth target range for next year was narrowed to 6.5-7.5% from 6.5-8%.
Despite the revisions, Mr. Balisacan said the Philippines would still be among the fastest-growing economies in the region, as the government tries to sustain infrastructure spending at 5-6% of economic output until the end of Mr. Marcos’ six-year term in 2028.
“The revised targets for our headline indicators considered the country’s recent economic performance in 2023 and reflect the latest developments and expectations on external factors such as global demand and trade growth, oil price movements, and expected exchange rate and inflation trends,” Mr. Balisacan said.
The statistics agency on Thursday lowered last year’s GDP growth to 5.5% from 5.6% initially reported. This was below the government’s 6-7% target and slower than the 7.1% growth in 2022.
The Development Budget Coordination Committee (DBCC) maintained the 6.5%-8% growth targets for 2026 to 2028.
“At this pace of growth, we are still on track to reducing poverty incidence from 18.1 % in 2021 to single-digit level in 2028,” the NEDA chief said.
However, Mr. Balisacan said rising food prices, as well as possible hikes in wages, transport fares and utility costs may dampen consumer spending.
“On the external front, the global economic slowdown may weaken external demand, while increasing geopolitical and trade tensions could disrupt supply chains,” he said.
General elections in major economies could lead to political shifts that may disrupt trade and investment, Mr. Balisacan added.
‘REALISTIC’
The revised growth targets are “realistic” given the current inflationary environment, weak export prospects, and “uncertain external conditions,” Cid L. Terosa, former dean of the University of Asia and the Pacific’s School of Economics, said.
“Countries in the region are faced with similar economic issues, and many are even projected to perform worse than the Philippines,” Mr. Terosa said.
The revised GDP targets were “expected” and “remain within reach” as the economic managers took into account the high interest rates and muted global trade, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.
To make the target doable, the central bank should maintain a hawkish stance towards the second half of the year, Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in a Viber message.
“Downgrading growth by 0.5 percentage point may seem reasonable given some factors that may be outside the control of the government, particularly slowdown in global growth and weather challenges,” said former BSP Deputy Governor Diwa C. Guinigundo.
“However, it is also important for the government to show determined leadership and sustained efforts to mitigate the risks and aim for the original target,” he said in a Viber message.
Mr. Guinigundo said it is important for the government “to show something is being done to neutralize all these destabilizing shocks.”
Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University, said the diminished growth expectations could indicate failure on the part of the government to do more.
“The government has run out of ideas on how to grow the economy,” he said in a Facebook Messenger chat. “While many countries like Germany are facing difficulties, other countries like the US are experiencing substantial growth.”
INFLATION OUTLOOK
Meanwhile, the DBCC kept inflation targets at 2% to 4% until 2028.
Mr. Balisacan said the BSP is unlikely to keep its policy rate higher for a longer period.
“We don’t see that BSP will keep its policy rates. It will eventually go down as the (inflation) numbers become more firm,” he said.
The BSP has raised borrowing costs by 450 basis points (bps) from May 2022 to October 2023, bringing the benchmark rate to a near 17-year high of 6.5%.
Mr. Balisacan said the government is also closely monitoring global prices of staples including rice, which has driven inflation in recent months.
“With the weakening of El Niño by the middle of this year, we expect global rice prices to start declining and so looking at the rest of the year, we should be seeing those price pressures to moderate,” he said.
The DBCC also narrowed its foreign exchange assumptions for 2025 to 2028 to P55-P57 against the dollar this year, due partly to the expected reduction in Philippine exports. Foreign exchange assumptions were maintained at P55-P58 against the dollar from 2025 to 2028.
For this year, goods exports are expected to grow by 3%, lower than the previous assumption of 5%. Goods imports are also seen to increase by 4%, slower than the previous 7% growth assumption.
The Dubai crude oil price has been picking up and may increase by as much as 80% but is expected to go down to a lower range, Mr. Balisacan noted.
Assumptions for Dubai crude oil were also adjusted to $70-$90 per barrel this year and kept at $65-$85 per barrel from 2025 to 2028.
“Despite the anticipated risks, we remain optimistic about the country’s sustained growth momentum as we strive for better development outcomes,” Mr. Balisacan said.
DEFICIT
The DBCC also raised the budget deficit ceiling for the next five years as the government seeks to expand its infrastructure program to boost economic growth.
“We need to continue borrowing. It’s not in our interest to drastically reduce that deficit because that then will impact on growth,” Mr. Balisacan said.
Infrastructure projects funded by loans will boost the economy’s potential and enhance productivity, he noted.
The DBCC set a P1.48-trillion deficit ceiling for this year, slightly wider than the previous P1.39-trillion ceiling. It expects the deficit as a share of gross domestic product (GDP) to settle at -5.6% this year, from -5.1% previously.
The deficit ceiling for 2025 was also revised to P1.49 trillion from P1.23 trillion previously. The target for the deficit-to-GDP ratio was raised to -5.2% for 2025 from -4.1% previously.
“Based on the revenue and spending outlook, the deficit program will gradually decline from 6.2% in 2023 to 3.7% in 2028,” the DBCC said.
The DBCC said the new deficit path is now “projected to gradually decrease in a practical, sustainable, and strategically paced manner.
“Borrowings will be complemented by an upsurge in revenue collections over the medium term as a result of improved tax administration and recalibrated revenue measures,” the DBCC said.
The government is proposing a P6.2-trillion national budget for 2025, equivalent to 21.4% of GDP. This is 7.5% higher than this year’s budget.
“How does one justify the request to increase the budget while targeting a lower growth rate? Recall that last year was handicapped by the ‘intentional restraint’ of public spending,” Mr. Guinigundo said.
“One does not restrain public spending when we need to grow more because poverty and weak public health and education remain a big issue in our country,” he added.
Source: Business World