HOUSEHOLD consumption as well as infrastructure projects are expected to boost economic growth this year to 6 percent, according to First Metro Investment Corporation-University of Asia & the Pacific Capital Markets Research.
In a briefing on Wednesday, University of Asia and the Pacific economist Victor A. Abola said this is a slowdown from the 7.3-percent GDP growth estimates of the think tank for 2022. The official full-year growth estimates of the government will be released in two weeks.
For 2022, the think tank expects the industry sector to post a full-year growth of 6.5 percent and 6.3 percent in 2023 while services may have grown 8 percent in 2022 and is expected to slow to 6.6 percent this year.
“Amidst the unexpected challenges in the global economy in the past year, the Philippines pulled through and grew 7.7 percent [in the first nine months] driven by strong domestic demand,” First Metro President Jose Patricio Dumlao said.
“This year, we continue to anticipate external headwinds—slower global growth, interest rates and inflation will remain elevated and volatility will persist—which will temper growth. In the face of all this, the economy will remain resilient and is expected to expand by 6 percent,” he added.
Abola said growth will be driven by domestic demand, given expectations of higher household consumption as well as government spending, mainly for infrastructure and housing programs.
The easing of the increase in crude oil prices; slower wheat and industrial commodity prices; and expectations of the slowdown in monetary policy tightening will contribute to higher spending.
Abola also noted record employment levels that ensure Filipinos were receiving salaries and wages; a reduction in personal income tax; and the peso depreciation of 3 to 4 percent which translates to about P60 million to P70 million worth of benefits to spending.
For infrastructure, Abola noted that the Department of Public Works and Highways (DPWH) was given a higher budget this year and this will contribute to public sector spending.
Some infrastructure projects that this budget will finance include the P122 billion of the P488-billion Metro Manila Subway; P35 billion of the P141-billion North-South Commuter Rail; and other key projects such as the Davao City Circumferential road and the Boracay Circumferential road, among others. Infrastructure spending will also include Public Private Partnership (PPP) projects such as the Calax which will see spending worth P13 billion of the P45-billion project budget this year; the MRT 7, P15 billion of the P43 billion; and the LRT-1 Extension, P15 billion of the P69 billion.
The government is also seen to invest in mass housing to plug the 6 million housing backlog. This, Abola said, has received a P500-billion seed money and the creation of a Fannie Mae type secondary mortgage as well as local government participation.
“The country’s macroeconomic fundamentals remain strong. Our gross international reserves [GIR] which stood at $96 billion is at a comfortable level. This is equivalent to over 7 months’ worth of imports. Our debt-to-GDP ratio is still manageable—63 percent in 2022 and 64-65 percent in 2023. This is anticipated to decline starting 2024,” Dumlao said.
In 2022, the Monetary Board hiked policy rates seven times for a total of 350 basis points. As central banks continue to manage stubborn inflation, interest rates will continue to rise from its current levels.
After rates peak in the second quarter of this year, the local think tank said the yield curve is expected to retrace its path to levels below end December 2022 by about 12.5-50 basis points. They said they see a slight steepening of the curve with the 2-year vs 10-year spread increasing back up to around 150 basis points.
“In the debt markets, frequent issuers are anticipated to come back through refinancing opportunities but may exhibit caution in the early part of the year until there’s a better picture on the trajectory of inflation and interest rates. Issuances should pick-up in the second half,” the think tank said.
WB view: Dim
HOWEVER, the World Bank which released its latest Global Economic Prospects (GEP), believes the country’s GDP growth will be weak until 2025.
The World Bank said the country’s GDP growth is expected to average 7.2 percent in 2022; 5.4 percent in 2023; and 5.9 percent in 2024.
Based on the Philippine Economic Update that the Washington-based lender released in December 2022, the World Bank also expects the country to post a growth of 5.9 percent in 2025. “The baseline projection is subject to multiple downside risks, including the possibility of renewed pandemic-related disruptions, more prolonged real estate sector stress in China, sharper tightening of global financial conditions, weaker global growth, and more frequent disruptive weather events linked to climate change,” the World Bank, however, said.
“A prolonged war in Ukraine and intensifying geopolitical uncertainty could further reduce business and consumer confidence globally and lead to a sharper slowdown than projected in the region’s [East Asia and the Pacific] export growth,” the report added.
Other risks to the outlook, the World Bank said, include further disruptions caused by “renewed large-scale Covid-19 outbreaks” in China. This could hamper regional and global value chains.
The World Bank also pointed out that “unexpectedly persistent high global inflation” could tighten monetary policy further and cause a sharper than expected slowdown in economic growth.
The report stated that growth in the East Asia and Pacific (EAP) region is projected at 4.3 percent in 2023, an improvement from the 3.2 percent growth initially expected last year due to a projected rebound in China.
China is forecast to post a growth of 2.7 percent in 2022 and 4.3 percent this year. The World Bank, however said, this is still below its potential growth rate due to pandemic-related disruptions. Growth in the rest of the region is expected to slow to 4.7 percent in 2023 from 5.6 percent in 2022, as pent-up demand dissipates and declining goods export growth outweighs recovery in tourism and travel.