Growth to slow down, but no recession for Philippines next year

MANILA, Philippines —  The Philippines is not expected to slip into recession anew despite the slowdown in economic growth next year due to external headwinds brought about by tightening cycle by global central banks led by the US Federal Reserve to tame inflation.

Bangko Sentral ng Pilipinas Governor Felipe Medalla said in a recent television interview with CNBC that there is no threat of a recession despite the significant downside risks to economic growth next year.

“The question is not a recession but the extent to which growth will decline… It’s low growth, not a recession. By low growth, I mean here anything lower than five (percent),” Medalla said.

The Cabinet-level Development Budget Coordination Committee (DBCC) has penned a gross domestic product (GDP) growth of 6.5 to eight percent between 2023 and 2028.

For this year, the government is confident that it would achieve its 6.5 to 7.5 percent target as the GDP expanded by 7.7 percent from January to September this year.

Despite the series of interest rate hikes delivered by the BSP to fight inflation and stabilize the peso, the country booked a stronger-than-expected growth of 7.6 percent in the third quarter after slowing down to 7.5 percent in the second quarter from 8.2 percent in the first quarter.

The BSP chief expects the GDP to grow by at least six percent next year.

Finance Secretary Benjamin Diokno echoed the statement of Medalla that the country is not likely to slip into recession in 2023.

“I can assure that given the data that we have, even under extreme conditions, we will not have a recession,” Diokno said.

“Unemployment is down, industry and manufacturing are working well, we will continue to increase the quality of our overseas workers so I don’t think we will have a recession,” the chief of the Department of Finance added.

Likewise, Budget Secretary Amenah Pangandaman also said during the recent Procurement Summit 2022 that the Philippines would not fall into a recession, at least not anytime soon, even as the global economy is projected to suffer one.

“I think we are far from it. The economic team is trying its best. We have our medium-term fiscal framework and eight point socioeconomic agenda,” Pangandaman said.

“We will try to really push and open the economy. So for me, I think we are far from it (recession),” the secretary of the Department of Budget and Management said.

In 2020, the Philippines slipped into recession with the GDP shrinking by 9.6 percent as the economy stalled due to the strict COVID-19 quarantine and lockdown protocols.

As the economy reopened, the country exited the pandemic-induced recession with a GDP expansion of 5.7 percent in 2021.

Lower growth

Last September, multilateral lender International Monetary Fund (IMF) slashed its GDP growth forecast for the Philippines to 6.5 instead of 6.7 percent this year and further to five percent next year  due to external headwinds.

“IMF staff project real GDP to grow by 6.5 percent in 2022 but to slow to five percent in 2023 as the confluence of global shocks weigh on the economy in the coming months,” head of the IMF Article IV mission team to the Philippines Cheng Hoon Lim said.

In its latest Monetary Policy Report, the BSP projects GDP growth to settle within the DBCC’s target range of 6.5 to 7.5 percent for 2022, but economic headwinds could result in slower GDP growth in 2023 and 2024.

The full-year growth forecasts for 2022 and 2023 were adjusted upwards due to the upward revisions in the second quarter expansion, the stronger-than-expected growth performance in the third quarter, and the higher world GDP growth assumption for this year.

Meanwhile, the forecast for 2024 is lower, reflecting slower external demand as well as the impact of the BSP’s monetary policy tightening.

To tame inflation and stabilize the peso, the central bank’s Monetary Board has slashed key policy rates by 300 basis points that brought the benchmark interest rate to a 14-year high of five percent from an all-time low of two percent.

Inflation averaged 5.4 percent from January to October this year, well above the BSP’s two to four percent target, after shooting up to a 14-year high of 7.7 percent in October from 6.9 percent in September.

According to the BSP, domestic economic activity has recovered above its pre-pandemic level and is projected to reach slightly above potential.

“Staff estimates indicate that the output gap is projected to turn positive in 2023, largely reflecting the sustained expansion in 2022. Output gap will return to broadly neutral territory in 2024 as the impact of the BSP’s policy rate adjustments take hold on the economy,” the central bank said in the report.

Despite the headwinds, government officials and economists believe that the Philippine economy is resilient enough to weather policy tightening. — Louise Maureen Simeon