Up to 7% growth possible next year

Philippine economic growth may expand by six to seven percent next year as the continued deceleration in inflation should improve business and consumer sentiment, paving the way for interest rate cuts by the Bangko Sentral ng Pilipinas (BSP), according to the research unit of the Metropolitan Bank & Trust Co. (Metrobank).

“The outlook for higher growth in 2024 at six to seven percent is also hinged on the expected monetary policy easing by the BSP and other major central banks,” Metrobank Research said.

Metrobank Research’s growth outlook, however, is still below the gross domestic product (GDP) growth target of 6.5 to eight percent set by the Cabinet-level Development Budget Coordination Committee (DBCC) for next year.

The research unit has retained its GDP growth forecast for this year at 5.5 percent, as expansion quickened to 5.9 percent in the third quarter after slumping to 4.3 percent in the second quarter.

The economy expanded by 5.5 percent from January to September, lower than the six to seven percent target penned by economic managers.

“It should be noted that the Philippines appears relatively insulated from external shocks i.e., geopolitical risks, as the sources of growth continue to be largely from domestic consumption and services, as well as the bright spots seen in the recovery of tourism, remittances, and business process outsourcing revenues,” it said.

Metrobank Research said the strong economic growth in the third quarter suggests that overall economic activity has remained resilient despite a high-interest rate environment.

It said the strong growth gives the BSP more room for a rate hike should inflation expectations become problematic this year.

The central bank has raised key interest rates by a total of 450 basis points since May last year to tame inflation and stabilize the peso. This brought the benchmark interest rate to a fresh 16-year high of 6.50 percent despite the BSP keeping key policy rates unchanged last Nov. 16.

It added that BSP Governor Eli Remolona Jr. previously estimated that the economy could absorb up to a peak rate of 6.8 percent, but could still support growth in the long run.

Inflation averaged 6.4 percent from January to October, still above the BSP’s two to four percent target range. The consumer price index softened to 4.9 percent in October after quickening for two straight months to 5.3 percent in August and 6.1 percent in September.

Based on latest projections, the inflation outlook has moderated over the policy horizon, prompting the BSP to lower its risk-adjusted inflation forecasts to 6.1 percent from 6.2 percent for 2023, 4.4 from 4.7 percent for 2024 and 3.4 percent from 3.5 percent for 2025.

The risk-adjusted inflation is equivalent to baseline inflation forecasts plus the probability weighted impact of the different upside and downside risks to inflation outlook.

The BSP baseline inflation forecasts were raised to six percent from 5.8 percent for 2023 and to 3.7 percent from 3.5 percent for 2024, but lowered to 3.2 percent from 3.4 percent for 2025.