BPI eyes 6.3% PH economic growth for 2023 as inflation slows

By Joann Villanueva

June 23, 2023, 5:16 pm

<p>Bank of the Philippine Islands (BPI) chief economist Jun Neri<em> (PNA file photo)</em></p>

Bank of the Philippine Islands (BPI) chief economist Jun Neri (PNA file photo)

MANILA – Ayala-led Bank of the Philippine Islands (BPI) projects a 6.3-percent growth for the domestic economy this year and 6.5 percent for next year, seen to be buoyed by increased spending as inflation decelerates further.

In a virtual briefing on Friday, BPI chief economist Jun Neri said discretionary spending is now expected to increase as the rate of price increases continues to post slower growth.

“The source of our optimism is if inflation is going to be slower than originally anticipated, consumers will now consider discretionary (non-essential spending). They used to avoid it because of high food prices but now that food prices have started to stabilize, they may start to look at the possibility of purchasing more of the discretionaries,” he said.

BPI's growth forecasts for the domestic economy for both years are in line with the government's 6-7 percent assumption for 2023 and 6.5-8 percent assumption for 2024.

Neri said the resiliency of the US economy is also another factor to their optimism on domestic output, citing that a possible recession in the US, which is widely expected given the developments on inflation and banking-related issues, among others, will have an impact on the Philippines given the fact that the US is among the Philippines’ major trading partner.

In the first quarter of this year, the domestic economy surpassed expectations when it registered an annual growth of 6.4 percent.

Although this expansion is the slowest for the economy after seven consecutive quarters of strong growth, and after recovering from the virus-induced pandemic, authorities and analysts said this turn-out is still a robust one despite the elevated inflation rates since last year.

The country registered a 14-year high inflation rate of 8.7 percent last January, an unexpected result since authorities earlier projected the rate of price increases to start slowing when the monthly figure hit 8 percent last December.

Despite this, inflation has since posted slower monthly levels, with the May 2023 level down to 6.1 percent.

Average inflation in the first five months this year stood at 7.5 percent and monetary authorities forecast full-year average for the year at 5.4 percent, above the government’s 2-4 percent target band.

Inflation is seen to post within-target monthly rates starting in the last quarter of this year.

The Bangko Sentral ng Pilipinas’ (BSP) average inflation projection for 2024 is 2.9 percent while the 2025 forecast is an average of 3.2 percent.

Relatively, with inflation posting slower growths, Neri said the BSP has more room to cut compared to the Federal Reserve.

“But they have to be mindful of the differential between our rates and the US,” he said.

He pointed out that even if the BSP has an opening to slash its key rates it “may be forced to either do it gradually or not at all” if the Fed has not reduced the Fed Funds Rate.

“The major consideration is… again us having wide current account deficit,” he said, referring to the faster decline in exports over imports.

He said the current account deficit this year is expected to be smaller than last year, even as the gap is wider in the first four months this year compared to last year.

“Hopefully our exports will rebound in the second half (of the year). That will allow BSP to have a narrower interest rate differential,” he added.

Monetary authorities recently announced revisions on some items under the country’s balance of payment (BOP) outlook and these include lowering the current account (CA) deficit projection from USD16.8 billion to USD15.4 billion.

This was partly due to a sustained increase in travel receipts since the country has been reopened for foreign tourists, as well as the expansion of revenues of the business process outsourcing (BPO) sector. (PNA)