‘Growth target still on track’

The Philippines can still meet its gross domestic product (GDP) growth target of 6.5 to 7.5 percent this year despite the disappointing economic expansion in the second quarter and the expected slowdown in the second half of the year, an international think tank said.

Despite the slower growth in the second quarter, Fitch Solutions Country Risk & Industry Research raised its GDP growth forecast to 6.6 percent instead of 6.1 percent for this year.

The government reported a slower expansion of 7.4 percent in the second quarter from 8.2 percent in the first quarter, bringing GDP growth to 7.8 percent in the first half of the year.

“Due to better-than-expected economic performance in H122, we have raised our 2022 real GDP growth forecast to 6.6 percent in 2022, from 6.1 percent previously. Our forecast reflects our expectations that H222 growth will be moderate relative to the 7.8 percent year-on-year growth print in H122,” Fitch Solutions said.

The research arm of the Fitch Group said growth contracted by 0.1 percentage point on a quarter-on-quarter seasonally adjusted basis in the second quarter from a 1.9-percent year-on-year expansion in the first quarter.

“The deceleration in growth was in line with our view, but the magnitude was lesser than we expected. Looking ahead, we expect weakening global demand, elevated energy prices and tightening monetary conditions to continue to weigh on the Philippine economy,” Fitch Solutions added.

Early last month, the Marcos administration, through the Cabinet-level Development Budget Coordination Committee (DBCC), lowered the country’s GDP growth target to a range of 6.5 to 7.5 percent instead of seven to eight percent this year following the uptick in the prices of fuel and food as well as the impact of the Russia-Ukraine war.

“Overall, GDP growth in H122 benefited from the reopening of borders in February and election-related spending. Moreover, a relatively accommodative central bank has also supported consumption and investment to some extent. These tailwinds helped offset external headwinds stemming from elevated energy prices, a slowdown in the world economy, and tightening global monetary conditions,” according to Fitch Solutions.

It said the tailwinds would continue to fade over the coming months while growth headwinds would intensify, leading to slower growth in the second half of the year.

Fitch Solutions said that rising inflation, which averaged 4.7 percent and well above the two to four percent target of the Bangko Sentral ng Pilipinas (BSP), would continue to erode household purchasing power and weigh on private consumption that is expected to grow by 7.5 percent this year.

It sees the BSP Monetary Board further raising interest rates by another 100 basis points after a cumulative 125-basis-point hikes, bringing the benchmark rate to 3.25 percent from an all-time low of two percent so far this year.

“Finally, we expect more monetary tightening by the BSP and central banks in developed markets over the coming months, which will weigh on investment and, to an extent, private consumption,” it said.