MANILA – The Asean+3 Macroeconomic Research Office (AMRO) has hiked its 2022 growth forecast for the Philippine economy amid slashing its projection for the Asean+3 on account of the Russia-Ukraine conflict and tighter global financial situation.
It now sees a 6.9 percent expansion, as measured by gross domestic product (GDP), for the domestic economy this year, higher than its 6.5 percent projection last April. The 2023 projection, however, was kept at 6.5 percent.
“The driver for this growth is basically the opening of the economy,” AMRO chief economist Hoe Ee Khor said in a virtual briefing on Tuesday.
He said growth will be also driven by domestic consumption and investment, such as infrastructure or projects under the “Build, Build, Build” program.
Khor said the domestic economy is expected “to do relatively well in terms of growth” this year amid the coronavirus disease 2019 (Covid-19) infections due in part to the continued vaccination drive.
He said since the “Philippines is basically a service economy and the BPO (business process outsourcing) sector is doing very well”, AMRO expects the sector “to continue to do well and to expand as well.”
As the Philippines is a service-oriented economy and has been reopened given the drop in Covid-19 infections, Khor said it is “less affected by external demand even with the downturn in the US.”
“I think the spillover to the Philippine economy would not be as high as it is for other economies,” he said.
For the Asean+3 GDP, AMRO eyes this to be around 4.3 percent this year from 4.7 percent previously, while the 2023 forecast was hiked to 4.9 percent from 4.6 percent.
In terms of inflation and its impact on the Bangko Sentral ng Pilipinas’ (BSP) monetary policy stance, Khor said the central bank has leeway to “really increase” its key rates as economic growth is expected to continue its recovery and remain strong.
“We worry about inflation but because it is a supply shock, traditionally, the advice would be to look through the shock and try to support the economy,” he said.
He forecasts the BSP to hike its key rates “to neutral level, which is probably around 4 percent.”
“But even though rates are rising, monetary policy conditions remain accommodative. So, it will not be a drag on growth because the growth is basically self-sustaining,” he said.
He added: “It’s prudent for the central bank to start raising rates now in order to create more headroom for the economy in case of another shock.”
BSP’s policy-making Monetary Board (MB) increased the central bank’s key rates by a total of 50 basis points –25 basis points each last May and June.
To date, the BSP’s overnight reverse repurchase (RRP) rate is at 2.5 percent after being at record-low 2 percent following the 200 basis points reduction in 2020 as part of the central bank’s pandemic-related measures.
The MB hiked the central bank’s key rates as inflation continues to accelerate after surpassing the government’s 2-4 percent target band last April when it hit 4.9 percent.
It further rose to 5.4 percent last May and then to 6.1 percent in June, the highest since October 2018, due mainly to the continued faster rate of the indices for food and non-alcoholic beverages and the transport index.
The average inflation in the first half of this year stood at 4.4 percent.
AMRO forecasts the Philippines' 2022 inflation to average at 4.4 percent and 3.8 percent in 2023.
These are at 4.1 percent and 3.5 percent in the forecast last April. (PNA)