Standard Chartered sees the Philippine economy expanding by only 5.3 percent in 2023, well below the government’s forecast range, as high interest rates and more moderate consumer spending weigh on growth.
Jonathan Koh, Asia economist at the British banking giant, said the country remains one of the fastest-growing economies in the region but this was mainly due to the so-called base effect from the slower pace of expansion in the past.
“It’s going to be a slowdown from last year’s 7.6 percent [growth] and below the government’s 6 to 7 percent forecast,” he said during a briefing with Philippine media on Friday.
Koh said consumer spending would remain a key driver of the economy but he expected that pent-up demand that was unleashed during the postpandemic era will revert to a more moderate level in the second half of 2023.
“Going forward, I do think that the pace of consumption growth is probably going to remain a little bit on the softer side,” he said.
Consumer spending growth during the first quarter of 2023 moderated to 1.4 percent, the slowest in three quarters, according to the bank.
The economy could find support from cooling inflation, which was expected to drop below 4 percent in the fourth quarter of 2023, however, food inflation risks will persist. The banks’ full-year inflation forecast stood at 5.6 percent.
Meanwhile, the Philippines continues to struggle in terms of luring foreign investments, partly due to the high domestic and global interest rate environment.
“When companies make decisions on investments, they are going to look at [return on investment (ROI)]. At the moment, it’s very difficult to get attractive enough ROI to justify the high funding cost so that is probably going to remain a challenge for the investment side in the second half of the year,” Koh explained.
Nevertheless, he said easing inflationary pressures over the coming months would give the Bangko Sentral ng Pilipinas room to start cutting interest rates.
Koh expects a 25-basis-point cut as soon as December this year and the further lowering of interest rates by 50 basis points per quarter though the third quarter of 2024. INQ
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