REVENGE spending or pent-up demand is one of the strongest growth drivers of the Philippine economy this year, but this rise in consumption would not be enough for GDP growth to exceed 6 percent this year.
Local think tank First Metro Investment Corp.-University of Asia and the Pacific (FMIC-UA&P) Capital Market Research expects GDP growth to average 6 percent this year, while Standard Chartered Bank said in a briefing on Tuesday that growth could settle at 5.3 percent in 2023 before increasing to 6 percent in 2024.
“The continued uptrend of revenge spending should spur increased economic activity and growth in 2023. On the other hand, the 2023 momentum should pave the way to offset inflation, through adjustments in interest rates, government subsidies, and the like,” FMIC-UA&P Capital Market Research said in its latest Market Call report.
The local think tank said other growth drivers include infrastructure spending, as the budget of the Department of Public Works and Highways (DPWH) rose by 12.1 percent in 2023. Projects like the Metro Manila subway and North-South Commuter line are expected to “gain greater traction” this year, it added.
FMIC-UA&P Capital Market Research said export earnings may not also sustain fast-paced growth and Overseas Filipino Worker (OFW) remittances would likely only post a 3 to 5 percent growth this year.
“Q4 GDP expansion at 7.2 percent exceeded market expectations. Full-year growth of 7.6 percent, on the other hand, beat the government’s own revised projections. Record employment, higher infrastructure spending, exports and OFW remittances provided a rosier picture in an otherwise bleak scenario for the global economy,” the local think tank said.
Meanwhile, Standard Chartered Bank Economist Jonathan Koh said consumption spending came through for the economy in the second half of the year and is expected to continue, but at a slower pace this year.
Data from the Philippine Statistics Authority (PSA) showed Household Final Consumption Expenditure (HFCE) grew 8.3 percent while Government Final Consumption Expenditure (GFCE) slowed to 5 percent in 2022.
Koh said the high inflation would likely mute the purchasing power of Filipinos. In 2022, high inflation already eroded Filipinos’ purchasing power.
PSA data showed the purchasing power of the peso fall by P0.0505 centavos to P0.8674 by end-2022 compared to P0.9179 at the end of 2021. This erosion of the purchasing power was the largest since 2018, when it declined by P0.0525 centavos.
This means every Filipino shelled out an additional P13.26 to buy goods worth P100 in 2022. Products worth P100 in 2018, the base year used to compute the Consumer Price Index (CPI), cost P113.26 last year.
“What drove the expenditure in the second half of last year in terms of consumer spending is really the reopening (of the economy). (But) that is probably going to normalize and will not be as supportive in 2023 versus the second half of 2022,” Koh explained.
Other risks to the outlook this year include expectations that remittances will not be able to support household consumption this year due to slowdowns experienced in host countries abroad.
Koh also said consumer sentiment is weakening and investment activities are expected to plateau in 2023. The tight monetary policy will also likely weigh down the country’s economic prospects this year.
Meanwhile, in a separate briefing on Tuesday, the International Monetary Fund (IMF) has also downgraded its growth forecast for the ASEAN-5 or Indonesia, Malaysia, Philippines, Singapore, and Thailand.
The region is not expected to post a growth of 4.3 percent in 2023 and 4.7 percent in 2024. In October, the IMF projected that the region’s growth would average 4.5 percent in 2023 and 4.9 percent in 2024.
“The forecast of low growth in 2023 reflects the rise in central bank rates to fight inflation—especially in advanced economies—as well as the war in Ukraine. The decline in growth in 2023 from 2022 is driven by advanced economies; in emerging markets and developing economies, growth is estimated to have bottomed out in 2022,” IMF said in the World Economic Outlook Report.
This forecast is consistent with the downgrade in growth expectations for emerging and developing Asia at 5.3 percent in 2023 and 5.2 percent in 2024.
Much of this is due to China, whose growth is projected to rise to 5.2 percent in 2023, reflecting rapidly improving mobility, and to fall to 4.5 percent in 2024 before settling at below 4 percent over the medium term amid declining business dynamism and slow progress on structural reforms.
Image credits: Roy Domingo