‘Growth may fall below government target next year’

MANILA, Philippines — The Philippine economy may expand at a slower pace than what government expects next year, as elevated interest rates and lagging state spending dampen investments, according to an economist.

An official of Sun Life Investment Management and Trust Corp. (SLIMTC) said the overall economic view remains positive, but some headwinds may still linger.

SLIMTC president and chief investment officer Mike Enriquez said gross domestic product may grow by six percent in 2024, an improvement from the expected 5.6 percent GDP expansion this year.

However, this still falls below the 6.5 to eight percent assumption of the Cabinet-level Development Budget Coordination Committee for 2024, Enriquez said in an interview.

Even this year’s expectation is off the target of six to seven percent growth.

Enriquez said the not so rosy projection is still due to lower government spending and lower capital formation because of higher interest rates.

“It’s really the government that can boost GDP. On the private side, we have been noticing a slow takeup of loans for obvious reasons: it is so expensive to borrow money,” Enriquez told reporters.

“The government needs to be the one to take up the slack and I think they’re doing it, but I think they should have done it earlier and they’re playing catch-up now,” he said.

Enriquez noted that next year’s growth would continue to be driven by household consumption, but what could bring it higher would be accelerated spending for the government and higher exports.

Further, Enriquez said inflation could slow down to 3.7 percent next year from the expected six percent in 2023.

“The biggest thing to monitor would be the price of rice. Oil, (not so much) despite the OPEC cut in production, prices haven’t really moved up because China is slowing down and they have the biggest consumption,” Enriquez said.

Inflation dropped to 4.9 percent in October from the 6.1 percent rate in September. Year-to-date inflation at 6.4 percent, however, remains above the five to six percent target for the year.

As inflation is expected to further cool down, the Bangko Sentral ng Pilipinas (BSP) is seen to hold key interest rates and may start slashing by the second quarter of 2024.

“We are with consensus that starting in the second quarter, we may see rate cuts, and I think this is also aligned with how the US Fed is poised to cut rates as well by the second half of next year,” Enriquez said.

SLIMTC has penciled in an instant 50-basis-point rate cut once the BSP decides to do so next year.

In its regular meeting last month, the BSP kept rates unchanged at a 16-year high of 6.50 percent. But this came after it already decided to take an off-cycle action by hiking rates by 25 basis points.

Enriquez said this was more of posturing by the BSP to pull the trigger any time it needed to do so.

“Since inflation will start to wane, I don’t think it will be prudent for them to immediately cut, it will free up liquidity again,” he said.