Fitch Solutions said on Monday that growth momentum in the Philippines is likely to slow over the coming quarters, mainly due to factors such as rising inflation, continued high interest rates, and weak external demand.
“We expect growth in the Philippines to slow to 5.9 percent in 2023 from 7.4 percent,” said Lu Xicheng, country risk analyst at Fitch Solutions, during a webinar titled “Asia-Pacific Macroeconomic Update: Major Topics for 2023.” in 2022.”
“The build-up of inventories in the third quarter suggests that demand may be waning while business sentiment continues to weaken,” Cheng said.
He stressed that high inflation, persistently rising interest rates, and weak external demand are also likely to be headwinds to growth, “with the impact only mitigated by strong public investment.”
Inflation rose to 8.1% in December 2022 from 8.0% in November and 3.1% in December 2021. This lifted the 2022 average to 5.8%, the highest rate in 14 years.
High inflation also prompted Bangko Sentral ng Pilipinas to raise interest rates by a total of 350 basis points last year, taking the policy rate to a 14-year high of 5.5 percent.
Meanwhile, the Philippines’ current account deficit is expected to narrow to 4.7 percent of GDP this year from 5.2 percent in 2022.
“While we still expect the current account deficit to narrow, it will still be much larger than its historical five-year average of -0.5 percent,” Cheng said.
“Low commodity prices and flexible remittance flows will lead to a smaller current account deficit, but weakening global demand and higher imports of capital goods will prevent a sharper narrowing,” he added.
Fitch Solutions also expects FDI to weaken in 2023 “as global financing conditions tighten, which will be an indirect burden on the Philippine import bills.”
However, the multilateral parties believe that the country remains on the right track of fiscal consolidation this year “due to strong revenue growth on the back of broad tax reforms and strong economic growth, which will offset expansionary fiscal spending.”