Economy seen to grow below target this year

The Philippine economy may underperform this year as local and global headwinds persist, with the expected growth falling way below the government’s target, according to two top analysts.

Albay Rep. Joey Salceda said the economy is likely to expand at a slower pace this year from last year, as inflation is expected to affect consumption and wages.

“Overall, it will be hard to match 2022 growth of 7.6 percent. We are looking at 5.5 to 6.5 percent (this year),” Salceda, an economist, said during the Management Association of the Philippines’ general membership meeting on Wednesday.

His gross domestic product (GDP) growth projection for this year is below the Cabinetlevel Development Budget Coordination Committee’s six to seven percent growth target.

He said the key headwind is inflation, which could dampen consumer spending and erode wages.

Meanwhile, Nicholas Mapa, lead economist at Dutch financial giant ING Bank in Manila, expects GDP to grow by five percent this year, saying that signs are pointing to growth falling short of target amid global headwinds.

“Given all these challenges, we are expecting Philippine 2023 GDP growth to slip below the government target of 6.5 percent year-on-year. However, given all the multiple challenges faced by the economy, we believe our five percent year-on-year growth forecast can be considered quite respectable against the backdrop of a likely global recession,” Mapa said.

“We believe, however, that although the 2022 GDP result surprised on the upside, fading revenge spending, sticky inflation, uncertainty over interest rates, and tight fiscal purse strings all point to the Philippines missing its growth target this year,” he added.

He pointed out that elevated inflation and households opting to rebuild savings could mean that consumption would moderate while high borrowing costs have already begun to cap the upside to capital formation.

Furthermore, he said the relatively tight fiscal space, exacerbated by the income tax this year, points to only a modest pace of government spending in 2023 and a limited ability for the government to support growth.

According to Mapa, one additional factor that could slow growth even further this year is the projected global downturn and its impact on Philippine exports, while the potential slowdown of remittances from overseas Filipino workers (OFWs) may be sizable enough to pose yet another challenge to domestic consumption.

The bank economist said inflation would be sticky this year given pervasive price pressures across several items in the consumer price index (CPI) basket as it revisited multi-year highs last year fueled by surging commodity prices and resurgent domestic demand.