As global concerns persist, the economy is likely to grow below the target this year

MANILA, Philippines – The expansion of the Philippine economy is expected to hit the brakes this year, with growth falling short of government projections amid global uncertainties despite easing commodity prices.

In a conference call yesterday, Sun Life Investment Management and Trust Corporation (SLIMTC) said the overall economic outlook remains positive, but headwinds persist amid global recession fears.

SLIMTC president and chief investment officer Mike Enriquez said gross domestic product (GDP) could grow to 5.4 percent this year, a significant slowdown from the 7.6 percent expansion in 2022.

This is lower than the six to seven percent estimate by the Cabinet-level Development Budget Coordination Committee (DBCC).

„This is mainly due to base effects. Consumer growth is very strong, especially for non-food spending, but there is some headwinds due to global recession fears,” Enriquez said.

„While the global growth slowdown is expected to dampen business and consumer sentiment, we expect continued growth in consumption and capital spending.”

Enriquez said there is a need to be cautious about fears of a recession in the U.S., which could result in lower consumption.

Nevertheless, Enriquez noted that the story of last year’s reopening will continue, supporting more services and tourism.

Similarly, SLIMTC sees a continued slowdown in inflation following a sustained slowdown in the past months, and commodity prices have rebounded from last year’s highs.

Enriquez said inflation will drop to five percent this 2023, from 5.8 percent last year.

This is significantly more optimistic than DBCC’s five to seven percent assumption for the year.

„But weather-related events like a weak El Nino are a risk, but early imports of rice, grains and livestock can mitigate this,” Enriquez said.

„Others include persistent inflation and geopolitical risks that could result in supply chain issues and again higher commodity prices,” he said.

As inflation is expected to ease further, the Bangko Sentral ng Pilipinas (BSP) is likely to see the Bank continue to hold key interest rates on hold.

„We now have the BSP at an inflection point, and the rate pause is expected to last until the fourth quarter, at which point the BSP will cut rates,” Enriquez said.

Two weeks ago, the central bank kept the overnight reverse repurchase facility at 6.25 percent.

This is the first pause by the BSP after raising key policy rates by a cumulative 425 basis points nine times since May last year.