Moody’s Analytics slashed its 2022 gross domestic product (GDP) growth target for the Philippines to 6.8 percent from the original target of 7.2 percent as high interest rates and slower global growth challenge Asia-Pacific economies.
In a report, Steven Cochrane, chief economist at Moody’s Analytics, said the regional economy is being tested. “Export markets are weakening, inflation is rising, and the multiple imbalances holding back China’s economy have only just begun to abate with no clear signal yet of the future,” he said.
The economist said much of the region, including most of Southeast Asia and India, are nowhere near the risk of recession confronting Europe.
The revised forecast is still within the 6.5 to 7.5 percent GDP growth target set by economic managers via the Development Budget Coordination Committee (DBCC).
The research arm of the Moody’s Group expects Philippine economic growth to slow down to 6.4 percent in 2023 and further to 6.1 percent in 2024, lower than the DBCC target of 6.5 to eight percent.
Cochrane said it would be a slower year in 2023 despite the fact that the outlook for outright recession in the coming years remains low across Asia Pacific.
He said the regional economy would operate under a weaker export environment and higher interest rates.
“The fastest-growing economies at the moment – Malaysia, Vietnam and India – are likely to slow the most as their period of rapid post-COVID recovery comes to an end. The Philippines and Indonesia economies will not slow as much, as they are expected to be supported by strong infrastructure spending,” Cochrane said.
Furthermore, he said that inflation across the Asia Pacific is below the lofty heights seen in Europe or the elevated inflation still in the US.
“The easing of commodity prices comes at a good time as inflation in Asia Pacific is rising at an uncomfortably rapid pace in recent months. While not as high as in the United States or Europe, inflation is above six percent in Thailand, New Zealand, Singapore, India, Australia and the Philippines,” Cochrane said.
Inflation in the Philippines averaged 4.9 percent in the first eight months of the year, exceeding the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP), despite easing slightly to 6.3 percent in August from 6.4 percent in July.
“While fuel prices may be improving with the downturn in crude oil prices, there may be some volatility in the near term when fuel-price subsidies are removed in places such as Indonesia, Philippines, Vietnam and China,” he said.
This has prompted the BSP to raise interest rates by 175 basis points so far this year, bringing the overnight reverse repurchase rate to 3.75 percent from an all-time low of two percent, to anchor inflation expectations and stabilize the peso.
The central bank is widely expected to deliver another aggressive 50-basis-point hike today.