S&P retains Philippine GDP growth outlook for 2022

MANILA, Philippines — S&P Global Ratings kept its gross domestic product (GDP) growth forecast for the Philippines at 6.5 percent for this year, but said scarring is largest in the country, as output would remain below pre-COVID trend in several Asia-Pacific economies.

In a report, the debt watcher said the projected GDP growth for the Philippines this year is the third fastest in the region after India’s 7.3 percent and Vietnam’s 6.6 percent.

The forecast is also faster than the projected 4.2 percent GDP expansion in the region for 2022, slower than the earlier projection of 4.6 percent.

“We currently expect that, as of 2022, this scarring will be the largest in the Philippines, India, Malaysia and Thailand,” S&P said.

Despite the headwinds, S&P expects solid economic growth in economies relatively led by domestic demand such as the Philippines, India and Indonesia for 2022 and 2023.

The Philippines slipped into recession in 2020 as the economy contracted by 9.6 percent after the government imposed the longest and strictest mobility restriction in the world to slow the spread of COVID.

The Philippines emerged from the pandemic-induced recession with a GDP growth of 5.7 percent last year as the economy further reopened from strict COVID quarantine and lockdown protocols.

The momentum was sustained with a stronger-than-expected expansion of 8.3 percent in the first quarter, faster than the revised seven to eight percent full year target set by the Cabinet-level Development Budget Coordination Committee (DBCC).

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said in an interview with Bloomberg Television that economic growth may accelerate further in the second quarter.

“We expect the second quarter to be even higher because the first quarter growth has to contend with a surge that happened in January,” Diokno said.

S&P said downward pressures on growth are high oil prices, slowing global demand for exports and high inflation.

For the Philippines, the debt watcher slashed its GDP growth forecast to 6.6 percent for 2022 and to 6.9 percent for 2023.

According to S&P, inflation and external pressure demand central banks’ attention after breaching the targets in various economies including the Philippines, Australia, India, New Zealand, South Korea and Thailand.

It said the central bankers in emerging markets that are vulnerable to capital outflow in the context of an increasingly hawkish US Federal Reserve have little policy room that recently hiked interest rates by 75 basis points, the biggest since 1994, to curb rising inflationary pressures.

“They will likely need to tighten. This is especially the case for net energy-importing emerging markets without a current account surplus to start with. The reason is that their current accounts will turn into significant deficits in 2022 due to higher energy prices. This points to India, the Philippines and Thailand,” S&P said.

The Bangko Sentral ng Pilipinas (BSP) has delivered a back-to-back 25-basis-point rate hike in May and June, bringing the overnight reverse repurchase rate to 2.50 percent from an all-time low of two percent.

The BSP now expects inflation to breach its two to four percent target at five percent for 2022 and to 4.2 percent for 2023.

S&P sees inflation quickening to 4.6 percent this year before easing to 3.7 percent in 2023 and to 2.6 percent in 2024. It also sees the BSP further raising key policy rates by 50 basis points to end the year at three percent, another 25 basis points to 3.25 percent in 2023 and another 50 basis points to 3.75 percent in 2024.

Diokno said the BSP does not need to keep pace with the US Fed. “You know, their problems are much more difficult than our problems. They have a higher inflation and they are starting from a very low interest rate. To me what matters is the real interest rate – in other words, interest rate corrected for inflation, and you can see that our problem is much less serious than their problems,” he said.