Moody’s unit cuts Philippine GDP growth forecast to 5.7%

MANILA, Philippines — The research arm of the Moody’s Group has slashed its growth forecast for the Philippines to 5.7 percent this year, from an earlier estimate of 7.1 percent, on the back of stubborn and persistently high inflation.

Steven Cochrane, chief economist for Asia-Pacific at Moody’s Analytics, said the Philippines had the largest downgrade in the region in terms of gross domestic product (GDP) growth forecast for this year.

However, he said the Philippines would still emerge as the fastest growing economy in the region, followed by Vietnam’s 5.4 percent, India’s 5.1 percent, China’s five percent, Indonesia’s 4.5 percent, Hong Kong’s 4.1 percent and Thailand’s 3.5 percent.

Moody’s revised outlook is now lower than the six to seven percent target set by the Cabinet-level Development Budget Coordination Committee (DBCC).

Last year, the Philippines sustained its economic rebound with a GDP growth of 7.6 percent, slightly higher than the 6.5 to 7.5 percent target set by economic managers, with the full reopening of the economy as COVID quarantine and lockdown protocols were lifted.

However, inflation accelerated to 5.8 percent last year, exceeding the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP), due to soaring global oil prices caused by Russia’s invasion of Ukraine, as well as elevated food prices due to supply shocks brought about by the strict COVID lockdown in China.

Cochrane said inflation has come in higher than expected in the opening months of 2023, adding to expectations that the central bank would continue tightening borrowing costs.

According to Moody’s Analytics, the GDP growth of the Philippines would accelerate to six percent in 2024 and to 6.4 percent in 2025.

Inflation is hovering around a 14-year high, with both headline and core inflation still elevated. Headline inflation eased slightly to 8.6 percent in February from 8.7 percent in January, while core inflation quickened to 7.8 percent from 7.4 percent.

Moody’s Analytics sees inflation accelerating further to 6.8 percent this year, before easing to four percent in 2024 and to 3.4 percent in 2025.

“But in countries where inflation has not yet been tamed, including Australia, India, the Philippines and Vietnam, central banks may continue to raise rates as expected while watching to see if tightening of lending standards within the Asia Pacific region and around the world does some of the heavy lifting for them,” Cochrane said.

The BSP has so far raised key policy rates by 400 basis points to tame inflation and stabilize the peso. This brought the benchmark interest rate to a 16-year high of six percent, from an all-time low of two percent.

The BSP, the most aggressive central bank in the region, is widely expected to tone down its tightening cycle with a smaller 25-basis point hike on Thursday.

“This will have a greater downward impact on domestic demand, particularly household consumption. With the weaker global economy this year, growth of remittances also will soften, adding another hit to private consumption and housing investment,” Cochrane added.