Moody’s raises Philippines 2023 growth target to 5.4 percent

MANILA, Philippines — Moody’s Analytics upgraded its 2023 economic growth forecast for the Philippines after a stronger-than-expected expansion in the third quarter, fueled by higher government spending.

Steven Cochrane, chief economist for Asia Pacific at Moody’s Analytics, said the Philippine economy may grow by 5.4 percent this year, higher than the original target of 5.3 percent for 2023.

“The forecast in October was 5.3 percent. The current (November) forecast is for 5.4 percent. So the revision was not large,” Cochrane told The STAR.

The Philippines posted a surprising GDP growth of 5.9 percent in the third quarter after slumping to 4.3 percent in the second quarter from 6.4 percent in the first quarter.

“The Philippine economy got back on its feet in the third quarter, dusting itself off after a disappointing second-quarter GDP print,” Moody’s Analytics economist Sarah Tan.

Tan said the economy grew by 3.3 percent in the third quarter after contracting by 0.7 percent in the second quarter.

“Improving government consumption was the good news of the September quarter. As we expected, state agencies accelerated the rollout of projects,” Tan said.

This brought the expansion during the nine-month period to 5.5 percent, lower than the six to seven percent target penned by economic managers through the Development Budget Coordination Committee (DBCC).

“Given the better-than-expected third-quarter reading, we will upwardly revise our full-year forecast. GDP growth is set to average around 5.4 percent this year, still missing the government’s growth target of six to seven percent,” Tan said.

Tan said the economy would have to weather domestic and global storms in the last quarter of the year.

According to Tan, government consumption should lift on account of state agencies stepping up the implementation of projects before the year ends as household consumption budgets remain under pressure due to soaring interest rates.

The BSP has raised key policy rates by 450 basis points since May last year, including the latest 25-basis-point off-cycle point hike on Oct. 26 to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations.

“The aggressive run of monetary policy tightening in 2023 should be over, but rate cuts are off the table until the middle of next year,” Tan said.

She added that the headline increase in exports was driven almost exclusively by an 11.7-percent increase in the services sector as international tourists returned.

Goods exports, she said, tumbled by 2.6 percent after being dragged down by a slowing global economy and global tech down cycle that is still finding the floor.

On the other hand, Tan said private consumption, the economy’s main engine, has stalled on account of elevate inflation and high borrowing costs.

“Cost of living pressures have forced many to rein in spending,” she said.

Inflation averaged 6.4 percent from January to October this year, still way above the two to four percent target set by the BSP. Headline inflation eased to 4.9 percent in October after accelerating to 5.3 percent in August and 6.1 percent in September from 4.7 percent in July.