The Philippine economy likely expanded by 7.1 percent in 2022, higher than projected, on the back of strong fourth quarter growth, according to a foreign bank.
In a commentary on Friday, Jan. 20, HSBC lead economist for ASEAN, Aris Dacanay, said they have raised the full-year GDP growth estimate from the previous 6.9 percent to 7.1 percent for 2022 after reassessing that fourth quarter growth probably was higher than anticipated due to “pockets of resilience” from the recovering exports and tourism sectors last year, as well the decent jobs performance.
“We therefore lift our 4Q22 GDP forecast to 5.5% y-o-y (previously 4.9%). Consequently, this lifts our full-year 2022 growth forecast from 6.9% to 7.1%, which means growth will likely fall within the government's 2022 growth target of 6.5-7.5%,” said Dacanay.
In HSBC’s latest Philippine GDP Watch report, while they see resilience in the economy, they also detect cracks.
“Amidst the displays of resilience, cracks are getting larger, brought by the lagged effects of both high inflation (currently the highest in ASEAN) and high interest rates,” said Dacanay.
Households, he noted, have “dipped into their savings in response to today's higher cost of living” and thus, “consumption should slow in 2023 as households readjust their purchases and start to build their savings back up.”
“History also shows that a high-interest environment will likely put a drag on growth by reining in both consumption and investment. In fact, demand for big-ticket items, such as passenger and commercial vehicles, has softened after booming in 3Q22. With consumption, investment, and even trade likely to ease this year, we maintain our view that full-year growth in 2023 and 2024 will likely fall below trend,” said Dacanay.
For this year, as earlier announced by the British bank, HSBC projects GDP will grow by a more modest 4.4 percent but will “slightly improve” to 5.2 percent GDP growth in 2024.
HSBC said exports and tourism industries are slowly recovering and will continue to support the growth momentum. For exports, the unexpected increase in the semiconductor shipment despite the tech sector slowdown last year was a surprise, said Dacanay.
He also noted that job creation has remained strong in the first two months of the last quarter of 2022 due to the resumption of face-to-face schooling. “Adults, who needed to stay home back then to accompany minors in the household, are now free to join the workforce with kids finally going to school. Thus, growth should have been boosted by the mere fact that more people are out and about doing their part in boosting overall economic activity,” said Dacanay.
However these pockets of resilience “mask lingering vulnerabilities coming into 2023.”
As announced earlier this month, HSBC expects the Bangko Sentral ng Pilipinas (BSP) to “continue raising interest rates to tighten the reins further on both demand and inflation.” The inflation rate averaged at a high of 5.8 percent in 2022, exceeding the government target of two percent to four percent.
Dacanay reiterated in the report that BSP will increase policy rates to as high as 6.25 percent this year after stopping at 5.5 percent in 2022.
“The last two times the BSP hiked rates by 6.00% or more were in 2006 and 2009. In both years, growth in the Philippines significantly slowed. The Philippines were in different circumstances back then, but nonetheless, both years underscore the possibility that growth may slow in the next two years due to the higher cost of borrowing,” said the HSBC economist.
Dacanay said that on top of inflation and high benchmark rates, the trade side will also have issues this year. “We don’t think the Philippines is impervious to the global slowdown ahead, with leading indicators still pointing to an eventual cool down in trade. To what extent will the recent upside surprises in exports continue needs to be monitored. Thus, we maintain our view that Philippines will likely grow below trend in 2023 and 2024,” he added.