Think tank cuts Philippines growth forecasts

MANILA, Philippines — New York-based GlobalSource Partners lowered its economic growth forecasts for the Philippines for this year and next year amid elevated inflation, tight financial conditions and constrained monetary policy space.

In a report, the think tank slashed its gross domestic product (GDP) growth forecasts to 5.2 percent from the original target of 5.5 percent for this year and to five percent from 5.8 percent for next year.

The figures are both way below the government’s growth targets of six to seven percent for this year and 6.5 percent to eight percent for next year.

Former finance undersecretary Romeo Bernardo and Christine Tang, country analysts for the Philippines at GlobalSource, said economic growth in the Philippines is slackening.

“We are nudging down our forecast for this year from 5.5 percent to 5.2 percent. We had expected consumption to slow down as pent-up demand eased and inflation erodes purchasing power, but the government’s considerable second quarter spending underperformance was a surprise. Also, here as elsewhere, Chinese tourism disappointed,” Bernardo and Tang said.

They said the Philippine economy would continue to face strong headwinds going into 2024, with economic growth continuing to slow in major trading partners.

They also cited the relatively tight financial conditions and still constrained macroeconomic policy space.

“Although we expect monetary easing to start next year, the absence of new growth drivers beyond remittances and service exports compels a significant reduction in our GDP growth forecast, from 5.8 percent to five percent,” Bernardo and Tang said.

They said a lower medium-term GDP growth path versus the government’s 6.5 to eight percent target, alongside incremental increases in government’s borrowing costs, would mean a more gradual decline in the government’s debt ratio.

The country’s GDP growth slackened to 4.3 percent in the second quarter from 6.4 percent in the first quarter, bringing the average growth in the first semester to 5.3 percent versus the government target of six to seven percent.

“To some extent, the economy’s ability to regain speed after the second quarter’s 4.3 percent growth rate depends on government’s ability to implement catch-up spending plans and prevent more delays in programmed spending for the rest of the year,” Bernardo and Tang said.

The authors said the revised GDP growth forecast took into consideration the deceleration in private consumption, reflecting near exhaustion of pent-up demand and households’ scrimping as inflation erodes purchasing power.