Philippines’ economic growth to slow in future quarters

09 Sep 2022

Economic growth is set to experience a further slowdown over the next few quarters due to accelerating inflation, say economists.

DBS chief economist, Taimur Baig said the country’s GDP growth is likely to return to the 6% range in coming quarters, but is still on course to hit 7% this year.

“The Philippines finds growth cooling as rising inflation hurts household spending, despite opening gains,” Baig said in a report entitled “Contrasting Growth Trends in Asia.”

Following the pandemic-fuelled recession, the Philippines emerged with GDP growth of 5.7% in 2021, after a 9.6% contraction in 2020, as the economy came to a halt during strict lockdown restrictions.

Growth subsequently rallied to 7.8% in the first half of the year, despite the 7.4% growth in Q2, a considerable fall from the 8.2% growth recorded in Q1, Phil Star reports.

“The economy is on track to grow by 7% this year, but the post-pandemic boom is slowing and growth will likely revert to the trend rate of 6% in the coming quarters,” Baig said.

Although Q2 GDP growth decelerated, Baig added it remained higher than the 6.2% trend seen during the Covid crisis. As a result, this indicates the country’s economy is still in a good position to cope with additional monetary tightening by the central bank, Bangko Sentral ng Pilipinas (BSP).

DBS forecasts the Monetary Board to further hike rates by 75 basis point this year, to bring the benchmark rate to 4.50% from 3.75%.

Up to now, the central bank has hiked rates by 175 basis points in 2022 to curtail soaring inflation, after cutting key policy rates by 200 basis points to a record low of 2% in 2020.

Furthermore, GlobalSource Partners based in New York reduced its GDP forecast for the Philippines to 6.3% as opposed to 6.8% for 2022, and 5% rather than 5.5% for 2023, as a result of external headwinds.