The Philippine economy will likely underperform in 2023 from a 46-year high growth of 7.6 percent in 2022 because of the combined effects of elevated inflation, sluggish global demand and higher interest rates, a subsidiary of the Fitch Group said Monday.
Fitch Solutions said in a report that while the economy expanded by a strong 7.2 percent in the fourth quarter, this pace might not be sustainable.
“While the latest data showed real GDP expanding by a strong 7.2 percent y-o-y in Q422, a slowdown over the coming quarters looks likely,” it said.
“As a result of the lagged impact of persistent inflation, weaker external demand and higher interest rates, we think that real GDP growth will slow from 7.6 percent in 2022 to 5.9 percent in 2023,” it said.
Fitch Solutions said the pace of growth in the Philippines would still be strong compared to the standards of most economies.
“However, it would still mark an underperformance for the Philippines, especially given that economic growth averaged at 6.6 percent from 2015 to 2019,” it said.
GDP growth in 2022 slightly surpassed the target range of 6.5 percent to 7.5 percent for the full year. The interagency Development Budget Coordination Committee expects a slower growth of 6 percent to 7 percent in 2023 amid the risks from both the domestic and external fronts.
National Economic and Development Authority Secretary Arsenio Balisacan said earlier that despite the 2022 economic performance that surpassed expectations, it was likely that the 6 percent to 7 percent target range for this year would be maintained.
“The 6 to 7 percent for 2023 is already a [lowered] forecast… The reality is in the global marketplace and the inflation and higher interest rates that we have…So for 2023, [there will be] no change in forecast. I don’t think so,” Balisacan said.
Fitch Solutions expects interest rates in the Philippines to peak at 6.50 percent, an upward revision from its previous forecast of 6 percent, as monetary authorities are expected to tame inflationary pressures going forward.
The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, on Thursday raised its overnight reverse repurchase facility by 50 basis points for the second consecutive time to 6 percent to rein in inflation that accelerated to 8.7 percent in January 2023.
This brought the cumulative rate increase to 400 bps since the central bank embarked on its tightening cycle in May 2022.
“The latest decisions were mainly driven by concerns over persistently high inflation, and we think that the BSP’s tightening cycle will continue into H123 to tame inflationary pressures,” Fitch Solutions said.