A unit of Fitch Group maintained its forecast of a slower 5.9-percent gross domestic product expansion for the Philippines this year, saying the lagged impact of interest rate hikes will heavily affect domestic activity, while exports will weaken due to sluggish global demand.
BMI’s projection was contained in a report on Friday, following the slower 6.4-percent expansion in the first quarter.
“Real GDP growth in the Philippines eased from 7.1 percent year-on-year in Q422 to 6.4 percent in Q123 and we think that it will slow further over the coming quarters,” BMI said.
“The lagged impact of interest rate hikes will weigh more heavily on domestic activity, while weakness in external demand will drag on Philippine exports,” it said.
“As such, we maintain our 2023 real GDP growth forecast at 5.9 percent, slightly more downbeat than the government’s projections of 6.0 percent to 7.0 percent,” it said.
The Philippine Statistics Authority reported Thursday that the 6.4-percent GDP growth in the first quarter was the slowest in seven quarters.
Looking ahead, BMI said the tightening monetary setting would pose increasing headwinds to investment growth.
“Our prevailing forecast is for the benchmark rate to be hiked by an additional 25bps as concerns over price stability will spur the Bangko Sentral ng Pilipinas towards a tightening bias. Subsequently, we think that interest rates will be kept at a multi-year high of 6.50 percent throughout 2023, with rate cuts only possibly materializing in 2024,” it said.
BMI said high interest rates would continue feeding through to the economy, acting as a drag on investment appetite.
“Last, we expect pent up demand to fade, and elevated rates of inflation and higher borrowing costs to weigh more heavily on private consumption growth ahead,” it said.
Inflation reached 8.7 percent in January 2023, the fastest in 14 years, before easing to 8.6 percent in February, 7.6 percent in March and 6.6 percent in April 2023. Despite the slowdown, inflation remained above the government’s target range of 2 percent to 4 percent.
The BSP raised the policy rates by 25 basis points to 6.25 percent in March to rein in inflation.
“Admittedly, the latest consumer price data showed inflation easing substantially to 6.6 percent y-o-y in April from a 14-year high of 8.7 percent y-o-y in January, and we expect inflation to cool gradually to 4.0 percent by end-2023. However, this would still be considerably higher than its historical average of 3.4 percent [2010-2022],” BMI said.
The Philippine economy grew by 7.6 percent in 2022.