MANILA, Philippines—Despite high consumer prices, returning domestic demand amid economic reopening would allow the Philippines to grow the fastest in the region this year, the regional surveillance organization Asean+3 Macroeconomic Research Office (Amro) said on Tuesday (July 5).
In its July quarterly update of the Asean+3 Regional Economic Outlook (Areo) report, Amro raised its 2022 gross domestic product (GDP) forecast for the Philippines to 6.9-percent growth from 6.5 percent previously.
Amro’s estimate remained below the government’s downscaled 7 to 8 percent GDP growth goal, which President Ferdinand Marcos Jr.’s economic team will review on Friday (July 7) in light of elevated global inflation, higher interest rates worldwide and risks of recession and stagflation in developed markets.
Amro’s updated 2022 growth forecast for the Philippines was the highest among 10 Asean member-states, plus China and Hong Kong, Japan, and South Korea. For Asean+3, Amro tempered its growth expectation for this year to 4.3 percent from 4.7 percent previously mainly due to external risks wrought by Russia’s prolonged invasion of Ukraine coupled with the US Federal Reserve’s aggressive monetary tightening.
For the Philippines, “the driver for this growth is basically the opening of the economy,” Amro chief economist Hoe Ee Khor told a press briefing. Despite the spike in COVID infection rate, “we expect the economy to remain relatively open because of the vaccination rate.”
On top of robust consumer demand, Khor said the Philippine economy stands to benefit from the rollout of more public infrastructure projects, as well as expectations that service exports—like the business process outsourcing (BPO) industry—would “continue to do well and expand as well.”
“Because it is a service economy, it has opened a lot, less affected by external demand even with the downturn in the US. I think the spillover to the Philippine economy would not be as high as it is for other economies,” Khor said.
While Amro raised its 2022 headline inflation forecast for the Philippines to 4.4 percent from 4.1 percent previously, Khor said the economy would continue to rebound from its pandemic-induced slump in 2020.
“Of course, we worry about inflation, but because it is a supply shock, traditionally the advice would be to look through the shock and try to support the economy,” Khor said.
“Because the economy is recovering quite strongly, the central bank has started to raise rates,” he said, referring to the Bangko Sentral ng Pilipinas’ (BSP) recent cumulative 50-basis point hike in the policy rate to 2.5 percent.
“That increase [was] basically normalizing the policy rates from the low of 2 percent. And I think that they’re expected to raise it to a neutral level, which is probably around 4 percent,” Khor said.
“But it’s prudent for the central bank to start raising rates now, in order to create more headroom for the economy in case of another shock and it needs to lower rates in order to have more headroom,” he said.
“So we don’t think the increase in interest rates, policy rates will have an impact on growth this year and next year,” Khor added.
Amro kept its 2023 growth forecast for the Philippines at 6.5 percent, similar to Vietnam’s and the highest in the region, despite inflation expectations rising to 3.8 percent from 3.5 percent previously, returning within the BSP’s 2 to 4 percent target band of manageable price hikes.