The Ayala Group’s Bank of the Philippine Islands (BPI) said the government must explore other growth drivers such as infrastructure and manufacturing as high inflation weighs on consumers, the bedrock of the Philippine economy.
In a statement on Thursday, BPI global market economist Rafael Alfonso Manalili urged “policymakers” to diversify growth sources to protect against “future shocks.”
“The Philippine economy is a consumer-driven economy, and we have a strong consumer base. It’s an asset that has allowed us to grow by at least 6 percent in the past decade,” he said.
Lessons could be learned from the recent pandemic, which affected household consumption and services the most.
“The pandemic has taught us that we need to diversify our growth drivers. We need to go beyond household consumption and services so that we can have an additional cushion in case another shock happens. This will allow us to grow faster and will protect us from external shocks like the COVID-19 pandemic,” Manalili said.
He said the government could achieve this by moving faster with its infrastructure program to attract investments. He also supported diversification toward investment spending, manufacturing, and exports that would lessen the country’s exposure to external forces.
“We need to reduce the cost of producing goods, and to do that, we need to improve infrastructure. We have the highest electricity rates and transport costs in the region. It’s feasible for us to improve on that,” he said.
Prices still problematic
BPI is forecasting full year growth at 5-6 percent, which is slower than last year’s 7.6 percent.
Manalili said average inflation would grow between 4.5-5.5 percent, weighing on Filipino consumers.
“Inflation has gone up significantly and it has a significant impact on the economy because we are a consumer-driven economy,” he said.
With inflation still above the government’s target range of 2-4 percent, BPI expects “additional rate hikes throughout the first half of 2023 before a pause in the second half and possibly even a rate cut if the US enters a recession, which could force the Federal Reserve to cut their rates.”
“It makes the cost of financing projects and investing in hard assets like equipment and factories more expensive. It might prevent the private sector from ramping up their capital expenditures,” Manalili said.