THE Philippine economy is expected to do better this year on the back of slower inflation that may spur private consumption and investments, according to Moody’s Analytics.
In its latest economic brief, Moody’s Analytics said “fading inflation” will likely prompt the Bangko Sentral ng Pilipinas (BSP) to cut interest rates.
This, Moody’s Analytics said, will bring down costs that could spur private consumption and investments. The earliest interest cut is expected to happen by June 2024.
“Volatile inflation prints in the first half of the year will persuade BSP to stay on hold, leaving us to expect its first rate cut to be in June at the earliest. Until then, household budgets will be under pressure,” Moody’s Analytics said.
Moody’s Analytics said there would also be some improvement in the global economy that would improve demand for semiconductors and electronics.
Semiconductors and electronics is the country’s largest export. This is expected to brighten the country’s prospects further in the second semester.
“The economy will fare better this year, especially in the second half. Fading inflation will give Bangko Sentral ng Pilipinas confidence to lower borrowing costs,” the think tank added.
Meanwhile, Moody’s Analytics said the country’s economic performance last year was mainly driven by consumption spending.
The 5.6 percent GDP growth, the think tank said, was better than its forecast of 4.9 percent, as well as the 5.2 percent average growth expectation of the market. However, this remained below the government’s 6 to 7 percent target.
The growth was driven by household and private investments as well as easing inflation, a tight labor market, and strong remittance inflow.
Other drivers were restaurants and hotels, transport, construction, and durable equipment. This, Moody’s Analytics said, was a surprise, given the country’s high borrowing costs.
However, the contraction in government spending and the country’s weak trade performance dragged economic growth.
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