Nomura hikes Philippines growth target for 2024

MANILA, Philippines — Nomura Global Markets Research has upgraded its economic growth forecast for the Philippines to six percent from 5.8 percent for this year after a better-than-expected expansion in 2023.

Euben Paracuelles and Nabila Amani said in Nomura’s Asia Economic Monthly report that there is sustained consumer spending in the Philippines.

“Our upwardly revised GDP (gross domestic product) growth forecast reflects better-than-expected GDP in the fourth quarter of 2023, suggesting some resilience in household spending, in contrast with our earlier view that consumers will be held back by weak sentiment and high inflation,” Paracuelles and Amani said.

They pointed out that the GDP expansion eased moderately to 5.6 percent in the fourth quarter of 2023 from six percent in the third quarter, helped by improving private consumption and investment spending growth.

Philippine economic growth slowed to 5.6 percent in 2023 from 7.6 percent in 2022 due to the impact of the aggressive rate hikes delivered by the Bangko Sentral ng Pilipinas (BSP) to tame inflation and stabilize the peso.

The expansion was below the six to seven percent target penned by economic managers via the Development Budget Coordination Committee.

“An improving growth outlook is likely to continue to reinforce BSP’s patience on its policy pivot, maintaining a relatively hawkish tone for some time despite declining inflation,” Paracuelles and Amani added.

Nomura, on the other hand, lowered its inflation forecast to 3.2 percent from 3.5 percent for this year.

Inflation eased sharply to 2.8 percent in January, the lowest in more than three years, from a 22-month low of 3.9 percent in December.

“We lower our CPI inflation forecast to 3.2 percent year-on-year in 2024 from 3.5 percent, following lower-than-expected CPI inflation in January that fell further to 2.8 percent from 3.9 percent in December, partly due to base effects,” they said.

Inflation quickened to six percent in 2023 from 5.8 percent in 2022 due to soaring oil and food prices. The headline inflation has breached the central bank’s two to four percent target range for two consecutive years.

The aggressive rate hikes delivered by monetary authorities helped tame inflation after it peaked at a 14-year high of 8.7 percent in January 2023.

The BSP Monetary Board has lifted key policy rates by 450 basis points since May 2022, making it the most aggressive central bank in the region.

“With easing inflation and rising public investment, we see domestic demand holding up better this year. After a slow start, more government progress on infrastructure implementation will be key for growth this year,” the economists said.

Nomura’s new forecast still suggests a pickup in headline inflation to 3.5 percent in the second quarter of the year, before stabilizing at 3.3 percent in the second half.

“Although inflation returned to BSP’s two to four percent target earlier than its forecast of Q3 2024, we do not expect an immediate pivot.