S&P, Moody’s see slower 2023 Philippine growth

MANILA, Philippines — S&P Global Ratings and Moody’s Investors Service expect the Philippines to post a slower economic growth next year brought about by external headwinds, including the elevated inflation and tightening cycle by central banks led by the US Federal Reserve.

In a virtual Asia-Pacific Credit Outlook 2023 Conference, Louis Kuijs, chief economist for Asia-Pacific at S&P, said the Philippines’ gross domestic product (GDP) growth may expand by 5.5 to six percent next year.

“We do envisage something like close to between 5.5 and six percent in the Philippines next year,” Kuijs said.

According to the economist, both monetary and fiscal policies are expected to tone down the growth in the Philippines as economic managers and monetary authorities tame inflation and stabilize the peso.

After exiting the pandemic-induced recession with a GDP expansion of 5.7 percent in 2021, the Philippines booked a 7.7 percent growth from January to September despite the series of interest rate increases by the Bangko Sentral ng Pilipinas.

The Philippines recorded a stronger-than-expected GDP growth of 7.6 percent in the third quarter, increasing the chances of achieving the 6.5 to 7.5 percent target penned by economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC).

“The Philippines really stands out, together with India, as two emerging markets that are on the growth zone doing pretty well,” Kuijs said.

Kuijs said domestic demand in the Philippines has been a major factor in the recovery from the impact of the pandemic.

To tame inflation and stabilize the peso, the BSP has so far raised key policy rates by 225 basis points and is poised to deliver another 75-basis-point increase tomorrow that will bring the benchmark interest rate to five percent from an all-time low of two percent.

Kuijs said S&P has slashed its growth forecast for the US and the Eurozone to close to zero in 2023 as inflation continues to soar.

“The global slowdown is weighing on manufacturing activity in Asia-Pacific, especially in small, open economies in North East Asia,” Kuijs said.

In a report titled “Crack in the Wall,” S&P head of credit research Eunice Tan said the higher-than-expected global economic slowdown would further depress aggregate demand and exports.

Tan said higher borrowing costs or tighter financing access would hit business operations and debt serviceability.

“Given slower global growth, attributable to that of US and Europe, slower export activity will knock the region’s 2023 outlook,” Tan said.

In a report on banks titled “Heard from the Market: Risks are Growing, but Spikes in Problem Loans are Unlikely,” Moody’s said that most economies in Asia, including the Philippines would see slowing growth in 2023.

“A key challenge for ASEAN countries is an acceleration of inflation, which is leading to rises in interest rates, in turn increasing repayment burdens for borrowers,” Moody’s said.