Marcos administration likely to temper growth targets as inflation bites

MANILA, Philippines — Economic managers of the Marcos Jr. administration would likely temper the growth targets set by the Duterte government as boiling inflation spoils the country’s economic mood.

Speaking to reporters on Monday, Socioeconomic Planning Secretary Arsenio Balisacan said revisions to the government’s macroeconomic targets are likely when the Development and Budget Coordination Committee meets again on Friday.

This, as the 7-8% gross domestic product (GDP) growth target set by the previous administration for this year has become more challenging to hit by the day amid an uncomfortably high inflation that’s threatening to choke consumption anew.

“I would expect that given the unexpected surges in some commodity prices and prolonged disruptions, such as Russia’s invasion of Ukraine, 7-8% might be a big challenge,” Balisacan told reporters.

“Still if you can grow at 6-7% during this year that will be remarkable. We will probably remain among the fastest-growing economies in Asia still. Everybody’s growth is already depressed,” he added.

Balisacan made the pronouncement during the turnover ceremony at the National Economic and Development Authority’s (NEDA) headquarters, as he starts on a role that he had previously taken during the administration of the late ex-President Benigno Aquino III.

If anything, his remarks tells a lot for a government tasked with a huge challenge of supporting an economy recovering from pandemic fallout while managing the risks of rising inflation. GDP grew at a remarkable pace of 8.3% in the first quarter, unbothered by a fresh round of lockdowns due to the Omicron variant surge in January.

But inflation which, in the past, had spoiled growth, is now hovering above the government’s 2-4% target. Already, the Bangko Sentral ng Pilipinas has started hiking its policy rate to tame rising prices, a move that could add more pressure on the economy.

“The trio of faster inflation, higher borrowing costs and multi-year debt levels threaten to be the direct counterweights to the economy’s two major sectors,” Nicholas Antonio Mapa, senior economist at ING Bank in Manila, said.

“Red hot inflation will likely peak at 7.2% in 4Q, which will likely force erstwhile robust consumption to finally slow down,” he added. “The next few months will determine whether the Philippines can return to the pre-Covid pace of expansion (6.3% average) or if we will maintain a decent but ultimately underwhelming pace of 4.5-5% growth over the next few years.”

But Domini Velasquez, chief economist at China Banking Corp., remained optimistic that a GDP growth of 7% is “still achievable.”

“The economy will continue to be stimulated by the continued opening up of the economy. Base effects from 2020 and 2021 will still affect the GDP print until the third quarter,” Velasquez said in a Viber message.

“Moreover, second quarter figures will receive an extra boost from election spending and the return of BPO workers onsite. In the third quarter, resumption of face-to-face classes will buoy transport and durable goods such as school supplies,” she added.