PH growth outlook stays at 6.5%

DEBT watcher S&P Global Ratings maintained its 2022 economic growth outlook for the Philippines below the government's goal in light of rising consumer prices.

It sees this year's growth in the country's gross domestic product (GDP) would be 6.5 percent, which is faster than the actual GDP growth of 5.7 percent in 2021 but less than the 7 to 8 percent growth target set for this year by the Development Budget Coordination Committee.

Asia Pacific chief economist at S&P Global Ratings Louis Kuijs said the Philippines' growth surprised to the upside significantly in the first quarter, with investment coming in particularly strong as both consumption and exports continued to increase.

"However, our outlook for the next few quarters is dimmer, mainly driven by a significant impact on consumption growth from high inflation," he told The Manila Times.

Additionally, Kuijs stressed, the inflation situation is forcing the Bangko Sentral ng Pilipinas (BSP) to end its monetary accommodation sooner than it had anticipated.

As part of its monetary policy normalization, the central bank raised its benchmark interest rates by 25 basis points back-to-back in May and June.

Kuijs cautioned that this would negatively impact investment recovery, particularly in the private sector, and weigh on growth during the following two years.

"The economy would also see more limited fiscal support as the focus begins to shift to getting the debt to GDP levels down from the pandemic-related spike," he added.

The S&P economist continued that while external demand is now still strong, it could be adversely impacted by China's lockdowns and the impact of inflation on the growth of big economies.

Kuijs said the slower domestic economy would also have an impact on imports, so the overall result may be neutral. Additionally, the return to narrower surpluses or even modest deficits in the current account — a symptom of the pandemic — might be slightly delayed or muted.

"This could then ease some pressure off the exchange rate as the Fed continues to drive a strong dollar environment," he underlined.

Felipe Medalla, governor of the BSP, has earlier voiced optimism that the Philippines' GDP growth would at least meet the government's lower-bound goal this year.

"It will be difficult to match 8.3 percent [economic growth] in the first quarter because of higher base effects. But at the same time, I will not be surprised if GDP growth this year is 7 percent," he noted.

Medalla anticipates that despite an increase in Covid-19 cases, the second quarter will still show positive GDP growth, albeit at a slower rate than the first quarter.

"When you look at the malls for instance. People are actually almost unafraid of Covid. I am not a medical expert, but I think to the extent that the rise in cases does not result in clogging the hospitals, then we'll be fine," he added.

The head of Bangko Sentral also minimized the impact of rising fuel prices on economic growth, asserting that they are more likely to increase prices than to decrease output.

"For instance, you will still commute to work right? But you don't go out at night. So, in other words, it's not hurting production as much as it's hurting pockets."

Source: TheManila Times