Fitch upgrades Philippine growth forecast for ʼ22 to 7.4%

Following a surprise gross domestic growth turnout for the third quarter of 2022, Fitch Solutions raised its full-year growth forecast to 7.4 percent from 6.6 percent previously.

“The latest outturn exceeded our expectations and brought growth in the first three quarters of the year to 7.8 percent year-on-year,” Fitch Solutions said in a commentary.

However, the growth momentum is expected to wane in the succeeding quarters as demand cools down and inflation remains high.

It thus lowered its forecast for 2023 to 5.9 percent from 6.2 percent.

Pantheon Macroeconomics agrees, saying that the Philippine economy is not as healthy as it looked, particularly as the household consumption-driven growth in the July-September quarter was supported by a surge in salary-based loans.

Base effects

Fitch Solutions said the downward adjustment was due to the higher base effects—with the numbers this year harder to exceed next year. They also cited mounting growth headwinds that are stemming from a quicker pace of monetary tightening and a slowing global growth environment.

“We expect pent up demand to wane, while elevated inflation will continue to erode household purchasing power and weigh on private consumption,” Fitch Solutions said.

The company also believes that above-target inflation and tightening external credit conditions will prompt the Bangko Sentral ng Pilipinas to continue its aggressive rate-hiking cycle, which would in turn weigh on investment prospects and, to an extent, household spending.

Further, “the outlook for the global economy has softened considerably, and this will further dampen external demand for Philippine exports,” it added.

United Kingdom-based Pantheon Macroeconomics, on the other hand, said growth in the third quarter was fueled by debt and savings and, thus, “far from sustainable.”

Consumption loans

The think tank added that an increasing reliance on credit cards and salary-based general consumption loans accounted for 75 percent of the acceleration in total loan growth.

“To be fair, the share of credit card debt to total loans remains on a fairly gentle uptrend, and is still a touch below the historical average,” Pantheon Macroeconomics said.

High prices

“But the same can’t be said about salary-based general consumption loans, which clearly have surged in tandem with the cost-of-living crisis,” it added.

Also, the think tank noted that fewer households were able to set aside savings in the third quarter, reflecting the squeeze in inflation and resulting in a renewed deterioration of already-depressed long-run spending plans.

Pantheon Macroeconomics also raised their 2022 growth forecast—to 6.8 from 5.6 percent—“as these are the cards the official—dubious—data have dealt.”

The company added that faster growth in 2022 will come at the expense of the 2023 performance, the forecast for which they also have lowered —to 4 from 4.8 percent. INQ