BSP sees economy decelerating in Q3

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) sees the country’s gross domestic product (GDP) growth decelerating further in the third quarter after a slower-than-expected performance in the second quarter.

Despite the projected slowdown, the BSP said in its latest Monetary Policy Report that the GDP would settle within the revised 6.5 to 7.5 percent target set by the Cabinet-level Development Budget Coordination Committee (DBCC).

The country’s GDP growth slowed down to 7.4 percent in the second quarter from the revised 8.2 percent in the first quarter, bringing the expansion in the first semester to 7.8 percent.

“Internal estimates for the third quarter growth indicate that domestic recovery could further decelerate in year-on-year terms. The projected slowdown during the quarter is largely due to external headwinds, such as the Russia-Ukraine conflict, as well as the slowdown in China and the US,” the BSP said.

According to the central bank, the full-year growth outlook for 2022 was adjusted downward from the previous round due to the slower-than-expected GDP outturn in the second quarter.

The BSP, however, said recovery momentum is expected to continue in the second half.

“The latest assessment continues to indicate that domestic economic activity will remain firm in the succeeding quarters in view of the looser mobility restrictions amid continued widespread deployment of COVID-19 vaccines and booster shots,” it said.

The BSP said the implementation of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, Financial Institutions Strategic Transfer (FIST) Act and the second tranche in the reduction in personal income taxes are seen to further bolster the domestic outlook for 2023 and 2024.

“These legislative measures are seen to shore up economic sentiment, as well as boost investment and consumption,” the BSP said.

However, heightened geopolitical tensions and the resurgence of COVID infections in some countries, along with faster-than-expected monetary policy tightening by major central banks have clouded the outlook for global economic growth.

“Domestic growth in 2023 and 2024 could be weighed down by slower global economic activity and tighter liquidity conditions as major central banks normalize monetary policy rates due to elevated inflation,” the BSP said.

The DBCC pegged the GDP growth target for 2023 and 2024 at 6.5 to eight percent.

The BSP has raised its inflation forecast to 5.4 percent for this year, but lowered its projections to four percent for 2023 and to 3.2 percent for 2024.