MANILA - Finance Secretary Benjamin Diokno on Wednesday said the “worst is over and better years are expected” for the Philippine economy despite the expected slow down in growth in 2023.
In a statement, Diokno said that while the global economy is likely to face a mild recession next year, the Philippines can still post one of the fastest growth rates in the region.
The Finance chief also said the Philippine economy has outperformed expectations for 2022.
“The Philippine GDP will likely grow much faster than the official target range of 6.5 to 7.5 percent this year. All sectors will be surging, led by manufacturing and construction, while strong domestic demand is supplemented by exports.”
Multilateral lenders and credit ratings agencies earlier upgraded their growth forecasts for the Philippines this 2022 including the Asian Development Bank (7.4 percent), World Bank (7.2 percent), and S&P Global Ratings (7.1 percent).
The same institutions have also forecast a slowdown in growth for the Philippines in 2023 due to numerous external headwinds.
Diokno meanwhile said that economic managers are expecting growth of 6 to 7 percent next year.
"But an average GDP growth of 6.5 percent is nothing to be sneezed at: it is still one of the highest, if not the highest, growth rates among ASEAN+6 economies," he said.
Diokno listed several data points to help justify his optimism, including the improvements in the labor market which created 4.6 million new jobs in October of this year leading to lower levels of unemployment and underemployment.
The latest jobs data from the October round of surveys do show labor normalizing back toward pre-pandemic levels. However, the Philippine Statistics Authority has also noted that more jobs, as well as better jobs, need to be created before they can truly say employment has fully recovered from the pandemic.
Inflation, which hit a 14-year high of 8 percent in November, was also downplayed by Diokno.
“The outlook is that inflation will start to ease next year and will be within the target band of 2 to 4 percent by 2024. This positive prediction is based on the very close coordination between monetary and fiscal authorities and the falling prices of oil and related commodities," he said.
He said that oil prices, a major source of imported inflation, have gone back to levels before the Russia-Ukraine conflict amid worries over global demand outlook.
Diokno said the oil futures market sees prices falling as of end-November ”owing to weak demand due to production disruptions in China, tighter global financial conditions, and deteriorating world growth prospects.”
Michael Ricafort, Chief Economist at RCBC meanwhile said inflation could ease next year driven by “base effects” as inflation is already elevated this year.
"Philippine headline inflation could go back to below 4 percent [or] upper end of the target as early as the latter part of 2023 but the average for 2023 could still be above the said inflation target,” Ricafort said.
Inflation could also dampen growth if it pushes the Bangko Sentral ng Pilipinas to raise interest rates again.
The BSP hiked key interest rates by a total of 350 basis points this year to anchor inflation expectations and offset any negative effects on money flows from the US Federal Reserve’s own rate hikes.
"Local policy rates would still likely match any future Fed rate hikes that have been smaller recently, towards 6 percent levels by early 2023, as part of the measures to stabilize the peso and overall inflation,” Ricafort said.
Further hikes in local policy rates, at some point, could become a drag on loan growth and overall economic growth amid much higher borrowing costs/financing costs."