MANILA, Philippines — The surprise third quarter performance may not last long as sustaining a strong economic growth next year will be challenging for the Philippines as external headwinds mount.
In its latest quarterly report, New York-based Global Source Partners Inc. maintained that the unprecedented external headwinds have lessened hopes of maintaining a high gross domestic product (GDP) for the country.
This, even after GDP surprised with a 7.7 percent performance in the third quarter despite high commodity prices and rising interest rates.
Former finance undersecretary Romeo Bernardo, country analyst at Global Source, said it remains uncertain how far the increase in private spending in the third quarter would be sustained.
“Apart from eroding consumers’ purchasing power, rising inflation and interest rates will trim firm profitability and threaten the liquidity and solvency of the less credit-worthy corporations, especially those with unhedged foreign debts,” Bernardo said.
“So far, while firms have been busy replenishing inventories, spending on fixed investments remained markedly below pre-pandemic levels and a credit crunch will dull investment appetites even more, with negative effects on labor markets as well,” he said.
Global Source is looking at a five percent GDP growth for 2023, a significant slowdown from its 6.8 percent assumption this year.
Such GDP projection falls below the 6.5 to eight percent target set by the economic team of the Marcos administration for 2023.
Other banks and multilateral lenders have also warned of growth slowdown in 2023, as inflation will remain a problem and that the recent consecutive rate hikes will eventually take their toll.
Global Source argued that downside risks are significant, particularly on the spending momentum that may dissipate quickly due to persistence of inflation.
Bernardo emphasized that the political will to address supply constraints through more relaxed import regimes for basic food items appears to lack the necessary urgency to quickly bring down food prices.
He said the highly leveraged households and firms that have managed to weather the pandemic may not yet be strong enough to bear the rapid rise in interest rates.
The think tank is also seeing dark clouds on the external front that may impact the Philippines, such as risk of recession in advanced economies, sporadic trade and supply chain disruptions, China slowdown, as well as heightened geopolitical tensions.
Nonetheless, Global Source still sees a glimmer of hope next year where growth will be driven by the mainstay remittances and business process outsourcing (BPO), both of which are expected to be relatively resilient to global economic downturns.
“Remittances are expected to gain from increased worker deployment while BPOs will continue to benefit from post-pandemic innovations driven by digitalization, with a reported growing pool of work-from-home gig workers helping to prop up consumer spending,” Bernardo said.
Some additional upside risks seen also include normalcy in global energy and food supplies, and prices and rebound in investments.
“Foreign direct investments can help boost growth if the Philippines is able to position itself as a viable location for those fleeing or hedging a less friendly foreign investment environment in China, due to geopolitical and trade and technology tensions,” Bernardo said.