MANILA, Philippines — The Philippine economy would likely slow further in the coming months, as rising borrowing costs meant to tame inflation crimp consumption and business expansion plans.
In a commentary, BMI Country Risk & Industry Research, a unit of the Fitch Group, said that while it maintains its 2023 growth forecast for the Philippines at 5.9%, the projection implies that “real GDP growth to remain on a slowing trend over the coming quarters”.
The Philippines’ gross domestic product grew 6.4% year-on-year in the first three months of the year. This was slower compared to the annual growth rate of 7.1% recorded in the fourth quarter of 2022, and the 8.0% expansion recorded a year ago.
But quarter-on-quarter, the economy grew 1.1%. The latest year-on-year outturn was also better than the median estimate of 6.1% growth based on a BusinessWorld poll of 23 economists.
BMI said the main cause of the projected slowdown is rising interest rates, which could act as a drag on investment appetite.
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Second, the Philippines will receive little external support amid tepid global demand, BMI explained, even though the recovery in Mainland China will help to provide some offset.
BMI also said it expects pent up demand to fade, and elevated rates of inflation and higher borrowing costs to weigh more heavily on consumer spending growth ahead.
“Risks to our growth forecast are skewed slightly to the upside. We are currently expecting external demand to remain weak throughout the year,” the Fitch unit said.
“However, a stronger recovery in Mainland China could provide a more significant offset. If inflation declines faster than expected, this would also enable the BSP to loosen financial conditions earlier,” it added.