‘PHL MAY AVOID RECESSION, BUT GROWTH STILL FRAGILE’

THE Philippine economy has a “big chance” of escaping a recession next year, thanks to strong domestic consumption, but growth remains fragile as threats remain, according to a local economist.

In a virtual briefing on Wednesday, BPI Chief economist Emilio S. Neri said barring any spike in Covid-19 or monkeypox cases, the Philippines would escape a recession. However, Neri said, what is expected is a slowdown in growth. This could still get worse if investments in the country remain below pre-pandemic levels.

BPI expects GDP growth to average 7 percent this year. However, the bank expects GDP growth to average 5.6 percent in 2023 and 5.8 percent in 2024, both below the expected historical growth rate of the country of around 6 percent.

“Of course we should probably aspire to not just avoid a recession but actually see a decent growth rate in 2023. But we believe that this (no recession) is true. Recessions typically for the Philippines are driven by very sharp reductions in demand because we are a demand and consumption driven economy (and) we have no problems with demographics, clearly we have the most favorable demographic profile here in Southeast Asia if not the whole of Asia,” Neri said.

“Things like Covid, things like Monkeypox, those types of problems are the ones that could lead to a recession for the Philippines. So if we avoid those, then the likelihood that we will go through one (recession) is low. Instead, we expect an economic slowdown,” he added.

Neri noted that consumption and government spending have both exceeded pre-pandemic levels. However, investment remains low and if there is no substantial improvement in these levels, economic growth will fall below target.

He said that while interest rates have risen and the uncertainty abroad could give the Philippines a chance to lure in investors, the likelihood of that happening next year is lower compared to the prepandemic period.

“Investments are still low. It’s still 9 points below pre-pandemic levels as of the end of the third quarter. This is our fear. If there is no improvement in investments, which is crucial for growth rates above 7 percent for the Philippine economy, we will find it very difficult to achieve the goal of (attaining) 6 to 7 (percent growth) and we may have to settle with something like 5 to 6 percent. So it’s very crucial that we are able to boost investments,” Neri said.

Inflation is also expected to dampen the outlook for the Philippine economy next year. BPI’S forecast for inflation is that it will average 5.8 percent this year and 4.8 percent in 2023.

With this, the Bangko Sentral ng Pilipinas (BSP) is expected to continue tightening monetary policy, with the policy rate expected to end this year at 5.5 percent.

However, the recession in the United States could prompt the Federal Reserve to reduce its policy rate next year. This will give monetary authorities some space to cut interest rates leading to a policy rate of 4.75 percent by the end of 2023.

The Philippine peso is also expected to be pummeled by the US dollar as it is expected to be the underperformer in the region averaging P56.1 to the dollar this year and P55.9 to the greenback next year.