Japan's Nomura sees 'shallower growth dip' for Philippines
MANILA, Philippines — Japan’s Nomura gave a better forecast on the Philippine economy for this year, as growth in the final quarter of 2022 sped past experts’ consensus.
The Japan-based investment bank projected on Friday that the domestic economy will grow at a “modest” pace of 5.5% in 2023, from its initial forecast of 4.3%.
“A less sharp decline in global growth is helping, but vulnerabilities remain from soaring domestic inflation,” the emailed commentary read.
The Philippine economy breached the government’s target of 6.5-7.5% as consumer spending, unfazed by painfully-high inflation, lifted growth figures to 7.6% in 2022.
The revision also bumped up Nomura's growth projection for 2024 to 6.3%, from the previous 6% forecast.
As it is, the Philippine economy will find itself in familiar waters in 2023 as headwinds are expected to impede its prospects. A projected global economic recession, supply-chain disruptions, and expensive commodity prices could clip the country’s growth momentum.
Rate hikes to continue
The Japan-based investment bank, however, raised its inflation forecast this year. Nomura now expects consumer price growth to average 5.6% in 2023, from its initial expectation of a 4.4% reading. The forecast still stood above the government's 2-4% annual target.
Despite economic officials previous projection of peak inflation by December 2022, the January outturn surprised the market as it accelerated to 8.7% year-on-year.
The rising inflation trend will likely compel the Bangko Sentral ng Pilipinas to keep hiking interest rates to 6%, according to Nomura. They expect two 25-basis point hikes each in February and March.
The key policy rates, currently hovering at 5.5%, was tightened starting in the second half of 2022 as the BSP combats inflation. Rate hikes, undertaken to increase borrowing costs and temper consumer spending, normally takes 12 to 18 months before it seeps into the domestic economy.
Despite this, Nomura expects the central bank to change its tone before the end of 2023. The Japan-based investment bank forecast interest rates would stand at 4.5%, from the previous 5%, by 2023.
“We still expect BSP to reverse course and start cutting its policy rate, but only from Q4 2023 instead of Q3, given our change in view that the Fed is no longer cutting this year,” the commentary read.
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