THE country’s economic growth will fall short of expectations in the last quarter of the year as Filipinos continue to struggle with high inflation.
This is expected to lead to full-year growth of below 6 percent according to First Metro Investment Corp.-University Asia and the Pacific (FMIC-UA&P) Capital Markets Research and the Asean+3 Macroeconomic Research Office (Amro) this year.
FMIC-UA&P Capital Markets Research expects full-year growth to average 5.8 percent while Amro estimated that the country’s GDP growth will only average 5.6 percent.
“All told, while the possibility of a slightly slower GDP uptick in the fourth quarter exists, full year growth should hold at 5.8 percent, which still exceeds most forecasts,” FMIC-UA&P Capital Markets Research said.
The government’s growth target for the year is 6 to 7 percent—where achieving the low-end would require a 7.2 percent growth in the last quarter of 2023.
“GDP growth in 2023 is projected to moderate to 5.6 percent due to high base effects and weaker external demand, before edging up to 6.3 percent in 2024 as external demand recovers,” AMRO said.
FMIC-UA&P Capital Markets Research said the fourth quarter will see growth continue on the back of strong consumer spending due to the holidays and the increase in the government’s infrastructure spending.
However, this may not be enough to boost GDP growth to 7.2 percent due to inflation which is expected to average 6.2 percent in 2023.
The local think tank said while inflation is slowing down, food price movements may dictate the pace of inflation. Oil prices, it said, may hover around $76 percent barrel (WTI) due to weak global demand.
Nonetheless, FMIC-UA&P Capital Markets Research said inflation may fall within the government’s 2 to 4 percent target in the first quarter of 2024, if food price increases will be muted.
“Weaker crude oil prices will aid in this downward trend, since WTI prices have plunged by some 20 percent since hitting a peak on September 27th, after Hamas rocketed Israel. Notably, the rise from the same level as in mid-November of WTI prices took 79 days to peak, but only 41 days to fall to current levels,” the think tank said.
“To be sure, rice prices still have an upside risk if the government fails to address the emerging El Niño droughts. Still, Transport and Food price indices have nearly equal weights at around 9 percent of CPI,” it added.
Meanwhile, Amro said the country’s economic growth will be clouded by various factors and challenges. The short-term challenge is inflation.
Amro said the country’s headline inflation is expected to rise to 6 percent in 2023 from 5.8 percent in 2022. This is expected to moderate to 3.6 percent in 2024, within the 2 to 4 percent inflation target of the Bangko Sentral ng Pilipinas (BSP).
“In the short term, high inflation, economic slowdown in major trading partners, and volatility in global financial markets along with tighter financial conditions could pose risks,” Amro said.
Given this, Amro said it supports the whole of government approach to addressing inflation.
These efforts include the provision of targeted fuel and cash subsidies to vulnerable sectors.
“Long-term growth potential is largely affected by the scarring effects of the pandemic, the pace of infrastructure development, geopolitical risks, and economic losses from natural disasters that are being exacerbated by climate change,” Amro also said.
Further, Amro recommended that the government undertake programs that will help the country overcome the “scarring effects” of Covid-19.
This includes efforts to help the Philippine workforce embrace technology through efforts that would upgrade their knowledge and skills to equip them for the demands of the new age workplace.
More effort, Amro said, should be exerted to attract additional investments and promote both goods and service exports.
“Infrastructure investment, digitalization, and development of a green economy can help strengthen the country’s competitiveness,” Amro added.
Earlier, a New York-based think tank said attaining the country’s growth targets will cost Filipinos either through higher taxes or more debts, as reaching a growth of 6 percent or better may lead to higher deficits.
Global Source Partners country analyst and former central bank deputy governor Diwa Guinigundo said it may not be feasible to attain the country’s growth targets this year. He said reaching the country’s “ambitious growth assumption” could lead the deficit to reach 5 percent of GDP.
Guinigundo explained that the government’s revenues in the first three quarters of the year declined to 16.5 percent of GDP from last year’s 17.1 percent of GDP.
Given this, he said the government’s actual expenditures of P3.8 trillion are short of the programmed spending of P3.9 trillion.
Guinigundo said the recent call of the government to intensify catch-up spending may also mean “very little” if the national budget this year will be left to fuel the country’s growth.
Image credits: Hrlumanog | Dreamstime.com