Philippine economic growth is expected to wane in 2023 after overshooting the government’s own target and most forecasts, particularly as household consumption that drove expansion in 2022 may not be sustained.
Fitch Solutions said in its latest outlook report on the Philippines dated Jan. 26 that it was maintaining its growth forecast at 5.9 percent for this year.
The think tank said the 7.2-percent fourth-quarter growth and the 7.6-percent full-year expansion in 2022 that brought gross domestic product above prepandemic levels was partly due to base effects—relatively low previous numbers that were easy to surpass.
“High inflation alongside continued and significant monetary tightening is also likely to weigh on domestic economic activity in the coming quarters,” Fitch Solutions said.
The company noted that the main drag on fourth quarter 2022 growth came from gross fixed investment, the increase of which slowed sharply to 6.3 percent year-on-year from 9.9 percent in the third quarter.
For the Fitch group unit, this slowdown provides early evidence that the aggressive monetary tightening cycle of the Bangko Sentral ng Pilipinas (BSP) was already starting to weigh on investment prospects.
In 2022, the BSP policy rate was raised in several tranches to 5.5 percent from a pandemic-induced record low of 2 percent. The BSP has hinted that rate hikes will continue during the first semester, especially in the first quarter.
“The prospects for global demand remain tepid, which bodes poorly for the Philippines export outlook,” Fitch Solutions added.
Sluggish exports
Citing monthly trade data, the company said it saw signs of sluggishness in Philippine exports, the value of which fell by 9.7 percent in December alone.
In a separate commentary, Pantheon Macroeconomics warned against “extrapolating 2022 into 2023,” saying that last year’s readout failed to give a real sense of momentum in fixed investment—which is “none.”
“Much of [capital expenditures] growth took place in the first half of last year, and the second half was a completely different proposition, with business spending stagnating, 16 percent below the prepandemic peak,” the United Kingdom-based group said.
Also, Pantheon Macroeconomics reiterated that robust household consumption, the biggest contributor to 2022 growth, was unsustainable mainly because this was backed by borrowings.
“Consumers relied increasingly on debt to get by in the past 12 months, with growth in salary-based consumption loans—known more commonly as ‘payday loans’—surging to an all-time high of 67 percent year-over-year, as of November [which is] the latest data,” it added.
Still, Pantheon Macroeconomics is more sanguine on Philippine growth, revising upward their forecast for 2023 to 4.5 percent from 4 percent, and for 2024 to 5 percent from 4.5 percent.