The Philippine central bank expects this year’s gross domestic product growth to miss the government’s goal as economic activity moderates while it’s bringing inflation back to target.
“Economic headwinds along with the impact of the cumulative monetary policy adjustments could result in GDP growth settling below the DBCC’s target of 6%-7% for 2023 and 6.5%-8.0% for 2024 and 2025,” the central bank said in its monetary policy report for August.
The Development Budget Coordination Committee (DBCC) is the target-setting body composed of finance, budget, economic planning and central bank officials.
“The economy is projected to operate close to potential, on average, in 2023,” the central bank also said in the report. “But the strength of economic activity is likely to moderate over the policy horizon as pent-up demand wanes and prior monetary policy tightening manifests its full impact on the economy.”
A relevant timeframe for central banks, policy horizon refers to the time required to bring inflation within target. The monetary authority has raised its key rate by 4.25 percentage points since May last year, moves officials say will have a lagged effect of six months to a year, and kept the rate unchanged for a third straight meeting last week. It targets inflation at 2%-4%.
“The lower growth forecasts reflected the slower-than-expected Q2 2023 GDP growth outturn,” the central bank said. The slower domestic growth prospects for 2023 to 2024 are also partly due to higher crude oil prices, although the upward adjustment in the world gross domestic product growth outlook for 2023 is a mitigating factor, it added.
Excluding the pandemic years, the economy posted its weakest expansion since 2011 at 4.3% in the second quarter, which Bangko Sentral ng Pilipinas Governor Eli Remolona, Jr. has said was mainly due to elevated inflation and government underspending. — Bloomberg