MANILA – The ASEAN+3 Macroeconomic Research Office (AMRO) reported Thursday that it maintained its gross domestic product (GDP) growth forecast for the Philippines at 6.9 percent for 2022 while revising downward the outlook for next year from 6.5 percent to 6.3 percent.
The latest GDP growth projections for the Philippines for 2022 and 2023 are still above the revised outlook for ASEAN+3 (China, Japan, and South Korea) at 3.7 percent and 4.6 percent, respectively.
The Philippine economy is also expected to expand at a faster pace compared to the Asean region, which growth for this year and next year seen at 5.3 percent and 4.9 percent.
During AMRO’s latest quarterly update Thursday, its chief economist Hoe Ee Khor said the strong economic performance in the first half of 2022 made the organization keep its GDP outlook for the Philippines for the year despite the impacts of inflation and peso depreciation.
“This year is—again, you have a very strong start in the first half of the year, and because of that, and with the low base, we expect growth to be at 6.9 percent,” Khor said.
However, GDP outlook for the Philippines along with the other ASEAN+3 economies next year is softer due to the stronger headwinds the region has to face. These include deepening energy crisis, more aggressive monetary policy tightening, sharper slowdown in the United States and Europe, more virulent coronavirus disease 2019 (Covid-19) variants, sharper-than-expected slowdown in China, and heightened geopolitical tensions.
“External headwinds have intensified since AMRO’s July 2022 update. Inflationary pressures are high, global financial conditions have tightened considerably, the risk of a recession in the US and Europe has risen, and geopolitical tension has heightened,” Khor said.
Likelihood of recession rises
AMRO’s chief economist noted that there is an intensifying fears of recession amid Europe’s energy crisis and the hawkish stance of the US Federal Reserve, which raises the risk of a hard landing.
AMRO data showed that the probability of recession in the next 12 to 18 months in the US jumped to around 70-percent in September from below 40 percent in August, while likelihood of recession in the Euro area also increased to 70 percent level in September from nearly 60 percent in August.
“Central banks in the region are tightening monetary policy to curb inflation and support their currencies,” Khor said.
AMRO data also presented that the Philippines’ central bank is one of the most aggressive in tightening its monetary policy to counter the higher inflation rate. However, inflation rate in the country is still one of the highest in the region from January to August this year, only behind Thailand, Singapore, and South Korea.
On Wednesday, the government reported that inflation rate for September stood at 6.9 percent, which is the highest since October 2018.
National statistician Dennis Mapa also said the faster increase in prices of goods and services may persist towards end-2022 due to impacts of weather disturbances, higher food prices, and higher fuel and transport cost, and a depreciating currency.
Khor said a major recession could affect remittances and inflation in the Philippines that would also temper demand in the country and slow down its economic growth.
Exchange rate attracting remittances
Khor said peso depreciation is in line with most of the currencies in the ASEAN+3 region.
Early this week, Philippine peso touched its all-time low of 59 to a dollar.
“I know the peso depreciated quite big… But at the same time the currency is depreciating in line, you know, with most of the other countries in the region. And so, I don’t think the depreciation is excessive in a sense. It’s also helping the Philippines because it’s attracting more remittances,” the economist said. (PNA)