Moody’s Analytics said the Philippine economy likely expanded by a modest 4.9 percent in the fourth quarter 2023, a slower pace of growth compared to 5.9 percent in the third quarter last year.
In its latest Asia Pacific Economic Preview released Monday, Jan. 29, Moody’s said the decelerating inflation path and better consumer expenditure are factors to its gross domestic product (GDP) forecast.
“In the Philippines, improving private consumption amid fading inflation, a tight labour market, and robust remittances should support economic growth of 4.9% year over year,” it said.
Moody’s further noted that the “higher spending by public agencies as the year closed will lend support, but a softening global economy will put a lid on private investment and trade.”
Moody’s 4.9 percent GDP forecast for the fourth quarter 2023 is closer but higher than the second quarter growth of 4.3 percent. In 2022, the full-year GDP expanded by 7.6 percent, and it made the Philippines one of the fastest-growing emerging economies post-pandemic.
For 2023, the government has a GDP target growth of six percent to seven percent. The full-year economic data will be released on Jan. 31.
Based on the November 2023 Monetary Policy Report of the Bangko Sentral ng Pilipinas (BSP), because of economic headwinds along with tighter financial conditions, the GDP growth could settle below the target of six percent to seven percent for 2023 and 6.5 percent to 7.5 percent for 2024.
The BSP said the projected GDP growth path “reflects primarily the impact of subdued global economic conditions as well as the lagged impact of the policy rate adjustments.”
BSP Governor Eli M. Remolona Jr. said last week that because of the faster-than-expected third quarter growth of 5.9 percent, they also expect the fourth quarter GDP to show the same performance.
“The economy is projected to operate slightly above potential output in 2023, but the strength of economic activity is likely to moderate over the policy horizon, as tight financial conditions and weakening external demand takes hold on the economy,” noted the BSP in the report.
Based on BSP’s Policy Analysis Model for the Philippines (PAMPh), the output gap or the difference between actual and potential output, will “fall to slightly negative territory in 2024-2025 from a small positive magnitude in 2023.”
“The projected gradual decline in the output gap reflects the impact of BSP policy interest rate adjustments on consumption and investment, projected slowdown in global growth affecting external trade due partly to tightening monetary conditions across major economies, and a decline in real income in the domestic front given high inflation and fiscal consolidation,” said the BSP.
Since May 2022, the BSP has increased the policy rate by a cumulative 450 basis points to 6.5 percent to curb high inflation.
The BSP also said that improving labor conditions, productivity recovery, and rising investments could support a higher potential output growth path. “Productivity is seen to continue recovering owing largely to firm economic output growth and acceleration in infrastructure spending,” it added.