MANILA - The Philippine economy is expected to grow by 5 percent in 2023, lower than the government target and the pent up demand-driven expansion last year due to existing headwinds and as consumers refocus on building their savings, ING Bank Manila said on Thursday.

Consumer spending largely contributed to the faster-than-anticipated 7.6 percent growth in 2022 after the surge in "revenge spending" coming from the COVID-19 pandemic.

Last year, the economic reopening triggered quarters of double-digit growth in air travel, restaurants and hotels despite elevated inflation, the bank said. The national elections also provided a boost to spending, it added.

However, the demand, currency depreciation and elevated prices prompted the Bangko Sentral ng Pilipinas to hike interest rates by 350 basis points in 2022. The key policy rate is now at 5.5 percent.

Interest rate hikes are expected to cool down inflation, but the lagging effect can also have an impact on spending, demand and growth.

ING cited a BSP survey that fewer households were able to set aside savings in the second and third quarters last year, possibly to fuel spending despite rising costs. But a recent survey showed an increase in savings rate “suggesting that households could now be building up savings after splurging over the past few months,” ING said.

The bank said this trend may continue in 2023 as households attempt to bring back savings to pre-pandemic levels.

"With households possibly refocusing on rebuilding savings we could finally see a moderation in consumption. Softer household spending suggests that economic growth will be missing key support this year, which is our central reason for expecting full-year GDP growth to settle at roughly 5 percent YoY," according to ING Bank's latest Philippine growth outlook.

"However, given all the multiple challenges faced by the economy, we believe our 5 percent YoY growth forecast can be considered quite respectable against the backdrop of a likely global recession," it said.

Economic managers have pegged 2023 growth at 6.5 percent while President Ferdinand Bongbong Marcos Jr said it could grow by as much as 7 percent.

"We believe, however, that although the 2022 GDP result surprised on the upside, fading revenge spending, sticky inflation, uncertainty over interest rates and tight fiscal purse strings all point to the Philippines missing its growth target this year," the bank said.

• Marcos tells WEF: PH economy to grow 'around 7 percent' in 2023
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Looming global growth slowdown may also have an impact on the country's overall economy as it could affect exports and remittances, among others, it said.

STICKIER INFLATION

Inflation, which exceeded forecast in January at 8.7 percent, is expected to remain "sticky" this year despite BSP Gov. Felipe Medalla's estimate that it would revert to target in the second half, ING said.

This is due to elevated global energy prices as well as supply chain challenges for basic food items. ING said inflation could remain above target at 5.5 percent this year before easing to 2 to 4 percent in 2024.

• Inflation quickens to 8.7 pct in January as housing, water, power costs rise

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