The ASEAN+3 Macroeconomic Research Office (AMRO) expects the Philippine economy will grow by 6.5 percent next year while keeping its previous estimate of 6.3 percent growth for 2024 unchanged due to risks and challenges such as high inflation.
Based on AMRO’s latest ASEAN+3 Regional Economic Outlook (AREO) report released Monday, April 8, while the 2024 outlook was retained, it forecasts a higher gross domestic product (GDP) growth of 6.5 percent for 2025 due to exports and investments.
Both 2024 and 2025 GDP outlook are supported by sustained household consumption and strong labor market recovery as well as public spending and investments, according to AMRO Chief Economist Hoe Ee Khor in a press briefing.
Based on the report, the country’s economic outlook is “clouded by various risk factors and challenges” despite that in the near term, “growth prospects are relatively robust.” The 6.3 percent GDP forecast for this year is lower than the government target of 6.5 percent to 7.5 percent.
“High inflation is a risk, especially as a result of local supply shocks in the food sector and the impacts of geopolitical conflicts on international energy prices. These will exert upward pressure on inflation which can dampen domestic demand. Additionally, an economic slowdown in major trading partners and volatility in the global financial market, along with tighter financial conditions that increase funding costs for the government, corporates, and households, also pose risks,” said AMRO.
Khor told reporters Monday that inflation remains a key concern for the Philippines. In 2023, the country’s consumer price index stood at six percent from 5.8 percent in 2022. By March this year, it has moderated to 3.7 percent. AMRO forecasts inflation will average at 3.6 percent this year and 2.9 percent in 2025, both are within the government target of two percent to four percent.
“In the Philippines, even though core inflation has come off, but it has not come down low enough for the central bank to feel comfortable to ease the rate,” said Khor. He said Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. is willing to wait for inflation to be firmly within the target range before reducing the key rates.
As for the economy, Khor said their forecast is lower than the government target of 6.5 percent to 7.5 percent for this year and also lower than the 6.5 percent to eight percent target for 2025.
“But for us, 6.3 percent is a very strong growth, it’s among the highest in the region. Philippines will also benefit from the upswing in terms of external demand. In a way, the manufacturing sector will benefit from that and also the recovery in tourism,” he said.
Khor added that “I think because of the synchronized upswing in the global economy, inflationary pressures may be on the upside, rather on the downside. So it may slow down, moderate the growth rate which can delay any easing in monetary policy.”
The report said the Philippines’ long term growth will “largely hinge on the economic scarring effects of the pandemic” as well as the “pace of infrastructure development, and heightened geopolitical tensions between China and the United States.”
“Meanwhile, as one of the most disaster-prone countries, the Philippines faces increasing social and economic costs due to global climate change. These factors underscore an urgent need for a comprehensive strategy to foster resilient, sustainable, and inclusive long-term growth,” said AMRO.
AMRO forecasts the ASEAN+3 region to grow by 4.5 percent this year versus 4.3 percent in 2023. For next year, it forecasts 4.2 percent regional economic growth.
The GDP growth projection for the Philippines of 6.3 percent in 2024 is the highest in the region, followed by: Cambodia at 6.2 percent; Vietnam at six percent; Indonesia at 5.2 percent; and Malaysia at five percent.
For 2025, the Philippines and Vietnam are both estimated to grow by 6.5 percent, followed by Cambodia at 6.4 percent.
AMRO said the region will grow stronger this year amid sustained domestic demand which will be “underpinned by increasing household incomes and recovering investment activity” while “the anticipated turnaround in exports, in part due to the global chips upcycle, and the continued recovery of tourism will provide additional tailwinds.”
The ASEAN region is expected to grow at 4.8 percent in 2024 and 4.9 percent in 2025 while the plus-3 or with China, Korea and Japan, the trade bloc is expected to remain robust at 4.3 and 4.1 percent, respectively, according to AMRO.
Inflation in ASEAN+3—excluding Lao PDR and Myanmar—is expected to moderate from 2.8 percent in 2023 to 2.5 percent in 2024, and 2.3 percent next year.
AMRO however warns against taking the region’s positive momentum for granted in light of potential disruptors to the growth trajectory.
“A sudden spike in global commodity prices, weaker-than-expected growth in China, or escalating geopolitical tensions could turn the tide for the region,” said Khor. “Now that the current outlook is quite positive, given robust growth and gradual disinflation, ASEAN+3 economies need to rebuild policy space as much as they can,” he added.