Losing momentum

PHILIPPINES - Forecast 28 Aug 2023 by Romeo Bernardo and Christine Tang

We are nudging down our forecast for this year from 5.5% to 5.2%. We had expected consumption to slow down as pent-up demand eased and inflation erodes purchasing power, but the government’s considerable 2Q spending underperformance was a surprise. Also, here as elsewhere, Chinese tourism disappointed.

The economy will continue to face strong headwinds going into 2024, with economic growth continuing to slow in major trading partners, financial conditions still relatively tight and macroeconomic policy space still constrained. Although we expect monetary easing to start next year, the absence of new growth drivers beyond remittances and service exports compels a significant reduction in our GDP growth forecast, from 5.8% to 5%. A lower medium-term GDP growth path vs. the government’s 6.5-8% target, alongside incremental increases in government’s borrowing costs, will mean a more gradual decline in the government’s debt ratio.

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