Moody’s Analytics hikes Philippine GDP growth forecast

MANILA, Philippines — Moody’s Analytics hiked the gross domestic product (GDP) growth estimate for the Philippines to above seven percent from 6.1 percent for this year after a stronger-than-expected expansion in the first quarter.

The research arm of the Moody’s Group said that economies in the region continue to show resilience in the face of inflation caused by sanctions on Russia as well as goods and commodities shortages amid the invasion of Ukraine and the COVID shutdowns in China.

Moody’s Analytics expects a GDP growth of about 7.2 percent for the Philippines after it slashed the projection to 6.1 percent from the original target of 6.4 percent.

“The upward revision to the Philippines’ 2022 GDP growth forecast was mostly due to the stronger-than-expected first quarter growth,” Moody’s Analytics associate economist Sonia Zhu told The STAR.

The revised projection is well within the revised seven to eight percent GDP growth target set by economic managers through the Development Budget Coordination Committee (DBCC).

The Philippines posted a faster-than-anticipated GDP expansion of 8.3 percent in the first quarter despite the reimposition of strict lockdowns as COVID infections surged to daily records in January due to the more contagious Omicron variant.

“Within Southeast Asia, the GDP outlook for Malaysia and the Philippines has strengthened as first-quarter GDP growth was much stronger than expected. Domestic consumption growth has accelerated faster than expected with the easing of social distancing rules. Further, exports have been supportive as elsewhere in the region,” Moody’s Analytics said.

The Philippines exited the pandemic-induced recession that stretched through five quarters with a GDP expansion of 5.7 percent last year after shrinking by 9.6 percent in 2020.

Moody’s Analytics said that policy statements from the incoming administration of president-elect Ferdinand Marcos Jr. indicate that infrastructure investment would accelerate as the focus returns to the Build Build Build policies of the Duterte administration.

After the revision, the Philippines may emerge as the second fastest economy in Asia-Pacific after India.

According to Moody’s Analytics, rising interest rates add friction to the pace of growth as the pace of monetary policy tightening creates the greatest near-term uncertainty.

The Bangko Sentral ng Pilipinas (BSP) started its interest rate liftoff when it delivered a 25-basis-point hike last May 19, the first in more than three years or since November 2018, and is likely to be followed up with another 25 basis points today to curb rising inflationary pressures.

Soaring global oil prices and elevated commodity prices caused by the Russia-Ukraine war pushed the country’s inflation to 5.4 percent in May from 4.9 percent in April, bringing the average to 4.1 percent in the first five months and exceeding the BSP’s two to four percent target.

“Philippines headline inflation is becoming uncomfortably high. High global fuel and commodity prices contributed significantly to import inflation,” Zhu said.

Moody’s Analytics sees the BSP hiking interest rates by 100 basis points, bringing the benchmark rate to three percent by the end of the year from an all-time low of two percent.