Moody’s Analytics downgrades Philippine growth outlook to 6.7%

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MOODY’S ANALYTICS said it lowered its 2022 growth estimate for the Philippines to 6.7% from 6.8% previously due to the lingering impact of the pandemic.

The downgrade comes despite a stronger-than-expected third quarter performance for Philippine gross domestic product (GDP).

The global research firm retained its forecast of 6.4% growth in 2023.

The economy expanded by 7.6% in the third quarter, exceeding the revised 7.5% growth posted in the second quarter and exceeding the 7% reported a year earlier.

In the nine-month period, GDP growth averaged 7.7%.

“The Philippines will feel the lagging effect of post-pandemic reopening as it had the longest continuous lockdowns of any country in the region,” Moody’s said in a report.

However, it noted that pent-up demand by companies and households for goods and services “will support growth next year, as well as government fiscal policy that is promoting education, public health, and a return to infrastructure development.”

Moody’s Analytics said that other primary risks include persistent inflation and potentially higher interest rates. “Current inflation exceeds 6% over the year in the Philippines,” it said.

Moody’s Analytics also raised its inflation forecast to 5.5% in 2022, 5.4% in 2023, and 3.1% in 2024, against its earlier estimates of 5.3%, 5% and 2.9%, respectively.

Headline inflation accelerated to 7.7% in October, mainly due to rising food prices.

October inflation was the highest since the 7.8% posted in December 2008, during the global financial crisis.

October also marked the seventh straight month that inflation breached the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target this year.

For the 10-month period, inflation averaged 5.4%, lower than the BSP’s 5.6% full-year forecast.

The BSP this month increased its benchmark rate by 75 basis points (bps) to 5% to tame inflation and keep in step with the Federal Reserve. Since May, the BSP has hiked rates by 300 bps.

The Fed has raised rates by 375 bps since March, including its fourth 75-bp rate hike earlier this month, bringing its benchmark interest rate to the 3.75-4% range.

China Banking Corp. Chief Economist Domini S. Velasquez said that GDP will likely hit at least 7% in 2022 due to the “resiliency of domestic demand against an elevated inflation and high interest rate environment.”

“Although the Philippines was quite late in removing pandemic restrictions, this led to robust pent-up demand with service activities reaping the benefit the most. This holiday season will also be the first with almost no restrictions which could further boost fourth quarter GDP,” she said in a Viber message.

Ms. Velasquez also said 2022 inflation will likely average 5.8% this year.

“We think inflation will still hit 7.7-7.8% levels in November and December, driving the full-year average higher,” she said.

“Vegetable prices are still on the rise, some shortages in onions and garlic have been observed, and sugar prices have not gone down despite reports of imports. Core inflation, or prices of goods deemed less volatile, is still on an uptrend until the first few months of 2023,” she added.

Foundation for Economic Freedom President Calixto V. Chikiamco said that the continued tightening by the BSP will dampen GDP growth.

“Interest rate-sensitive sectors like real estate, cars, and appliances will take a hit from higher interest rates,” he said in a Viber message.

Mr. Chikiamco noted that the Moody’s Analytics forecast adjustment was “statistically insignificant.”

“I don’t have a specific inflation forecast but inflation may decelerate by next year if recession hits the global economy and prices of commodities, particularly oil, fall,” he added. — Luisa Maria Jacinta C. Jocson

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