‘External headwinds’ threaten PH growth

The Philippine economy may underperform the Marcos administration’s growth ambition this year and next year due to narrowing headroom to counter intensifying external headwinds that keep food and fuel prices high and bring recession risks to major trading partners.

This is according to New York-based think tank GlobalSource, which downgraded its Philippine gross domestic product (GDP) outlook to 6.3 percent this year, further sliding to 5 percent next year. Previous forecasts were 6.8 percent and 5.5 percent, respectively.

GlobalSource’s growth expectations are way below the new administration’s 6.5 to 8 percent medium-term GDP growth target range. They are also less optimistic than the latest consensus forecast growth of 6.9 percent this year and 5.9 percent next year.

Aside from skyrocketing food and fuel prices and major trading partners facing either recession risks or significant growth slowdown, the think tank noted that financial conditions have tightened rapidly, with investor sentiments decidedly averse to risks.

“The global growth slowdown has varying and distinctive causes affecting all the major trading partners of the Philippines, the United States and the EU in the West, and Japan and China closer to home. It is also occurring alongside rapid financial tightening that is quickly transmitted to small open economies like the Philippines and commodity price shocks that oil and food importers like the Philippines cannot sidestep,” GlobalSource said in an Aug, 25 research note authored by Filipino economists Romeo Bernardo and Marie Christine Tang.

Slow crawl out of pandemic

“Government lacks the policy space to counter these external headwinds with monetary policy constrained by rising inflation, aggressive US interest rate increases and foreign reserve losses due in part to ballooning imports caused by high import prices. Even as domestic interest rates have risen rapidly, fiscal policy has also become less expansionary as government begins to repair public finances and steer the debt ratio toward a downward path.”

In the monetary setting, GlobalSource sees it unlikely for the Bangko Sentral ng Pilipinas (BSP) to match an additional 100-basis points interest rate hike that markets expect the US Federal Reserve to deliver for the rest of the year. However, the think tank said the BSP may be prepared to raise key policy rates by 50 basis points more “mainly to stave off speculation in the foreign exchange market and anchor inflation expectations.”

“This will be accompanied by sweeping past monetary expansion and a delay in the promised reduction in reserve requirements to single digit. This scenario is likely to result in more depreciation of the peso and more losses in the BSP’s foreign reserves,” it said.

While Philippine economic output surpassed prepandemic levels in the first semester, GlobalSource said the country was now facing a gloomy world economic outlook.

With one-off election spending boosting first semester GDP growth to 7.8 percent, the think tank said normalization of activities this second semester would translate into an average GDP growth of 6.3 percent this year INQ