Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla is confident the country’s growth momentum is sustainable amid expected challenges emanating from external factors.
In a statement on Monday, Dec. 5, after convening the most recent Financial Stability Coordination Council (FSCC) Executive Committee meeting, Medalla, who is the FSCC chair, has been noted as again emphasizing the “strong economic momentum of the Philippines despite challenges from the global environment.”
The inter-agency FSCC led by BSP continues to monitor and assess the global supply bottlenecks, high inflation both overseas and local, and the impact of “heightened policy rates on the economy”. The BSP’s Monetary Board to combat inflation and volatility in the exchange rate has increased the key rate by as much as 300 basis points (bps) in the last six policy meetings including one off-cycle rate hike.
“The council remains focused on possible systemic risks arising from the challenging global market. It continues to assess and address the needs of the Filipino public, taking a pre- emptive view in managing financial market risks,” according to the BSP.
The BSP in its latest Monetary Policy Report (MPR) said economic headwinds from global developments could result in a slower gross domestic product (GDP) growth for 2023 and 2024.
The government target rate for the next two years was high at 6.5 percent to eight percent. However on Monday, the inter-agency Development Budget Coordinating Committee adjusted these numbers to six percent to seven percent for 2023.
Medalla said earlier that the third quarter GDP growth of 7.6 percent is proof of momentum and it will enable the country to reach its target rate of 6.5 to 7.5 percent GDP growth this year.
The GDP has been on a growth path for the past six quarters after the pandemic-induced contractions between the first quarter 2020 until the first quarter 2021. In 2020, the GDP declined by 9.6 percent but recovered in 2021 at 5.6 percent, surpassing the government’s 2021 target of five percent to 5.5 percent.
Medalla said in November that despite recession threats in the US and the expected downside risks that will impact on the country’s 2023 GDP, there is no threat of a recession for the Philippines.
The BSP chief said what they are watching out for is not a recession, but by how much the economy will fall behind the growth projections. A recession occurs when there is prolonged economic contraction, typically two quarters of consecutive decline.
Based on the MPR, the fourth quarter 2022 growth “indicate that domestic recovery is likely to remain firm.” It said the continued improvements in the industry and services sectors due to the further easing of mobility restrictions as well as reopening of face-to-face classes are seen to drive the sustained expansion. Meanwhile, production losses caused by the recent typhoons could temper agricultural output, said the BSP.
The FSCC is composed of the BSP, Philippine Deposit Insurance Corp., Securities and Exchange Commission, the Department of Finance and the Insurance Commission. Malacanang’s Executive Order no. 144 signed last year, institutionalized the FSCC and gave it more teeth and power to intervene when needed to avert a financial market collapse.