S&P raises Philippines 2023 growth to 5.4 percent

MANILA, Philippines — S&P Global Ratings upgraded its gross domestic product (GDP) growth forecast for the Philippines to 5.4 percent from 5.2 percent for this year after a stronger-than-expected expansion in the third quarter.

Despite the upgrade, this is still below the six to seven percent target penned by economic managers for this year.

The Philippine economy grew by 5.5 percent from January to September as the GDP growth picked up to 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 GDP needs to accelerate to 7.2 percent in the fourth quarter to at least meet the lower end of the six to seven percent target set by the Development Budget Coordination Committee (DBCC).

“Asia-Pacific economies outside of China remain resilient. Growth this year and in 2024 should be the strongest in emerging market economies with solid domestic demand: India, Indonesia, Malaysia, and the Philippines,” S&P Asia Pacific chief economist Luis Kuijs and economist Vishrut Rana said in its latest economic outlook.

The Philippines is forecast to be the fastest-growing economy in the region, followed by Vietnam with 4.9 percent, Malaysia with four percent, Thailand with 2.5 percent, South Korea with 1.3 percent, Taiwan with 1.2 percent, Singapore with 1.1 percent and New Zealand with one percent.

The debt watcher also hiked its GDP growth forecast for Asia Pacific to 4.7 percent from 4.3 percent.

“Asia-Pacific as a whole continues to grow despite meager support from external sources. Emerging market economies with solid domestic demand are posting the strongest growth,” Kuijs and Rana said.

The authors said S&P Global purchasing managers’ indices (PMIs) suggest Asia-Pacific economies have generally continued to expand.

In October, the debt watcher noted that manufacturing PMIs remained below 50 in developed economies but have risen in South Korea and Taiwan, reflecting stronger activity in the semiconductor industry.

“In Southeast Asia, the manufacturing PMI mostly exceeded 50 in October, including in the Philippines, where it has jumped since September,” Kuijs and Rana said.

However, it remained below 50 percent in Malaysia but remained strong in India at 55. The services sector, PMI, has fallen in Japan and Australia.

For 2024, S&P lowered its GDP growth projection for the Philippines to 5.9 percent from 6.1 percent but is expected to accelerate to 6.2 percent in 2025 and 6.4 percent in 2026.

This is also slower than the DBCC target of 6.5 percent to eight percent between 2024 and 2028.

S&P believes interest rates will remain elevated in the Philippines after the Bangko Sentral ng Pilipinas (BSP) delivered a cumulative 450-basis point hike since May last year to tame inflation and stabilize the peso.

“In the Philippines, hefty food price increases, particularly rice, spurred the Bangko Sentral ng Pilipinas to raise its policy rate by 25 bps to 6.50 percent in October,” it said.

According to S&P, other risks are more domestic in nature as lingering inflation in the Philippines, Australia and India are keeping central banks occupied.

S&P expects inflation in the Philippines to stay above the BSP’s two to four percent target range, accelerating to 5.9 percent this year from 5.8 percent last year before easing to 3.4 percent in 2024 and 3.2 percent in 2025.

It foresees another 25-basis point hike from the BSP this year that will bring the benchmark interest rate to 6.75 percent before a series of rate cuts to six percent in 2024 and 4.25 percent in 2025.