ECONOMIC GROWTH. Standard Chartered forecasts a 5.3 percent growth for the Philippine economy in 2023, slower than the 7.6 percent last year, due in part to base effects and projection of continued elevated inflation rate. However, this growth projection is expected to remain among the highest in the region for the year. (PNA file photo)

MANILA – External risks are expected to dampen the Philippine economy’s growth this year, with Standard Chartered eyeing an expansion of 5.3 percent.

In a virtual briefing on Tuesday, Standard Chartered economist for Asia Jonathan Koh said base effects of last year’s robust growth, along with elevated inflation rate, are also seen as factors on their growth projection for the economy.

“(But the) 5.3 percent GDP (gross domestic product) in 2023 is still one of the strongest in Asia,” he said.

Last year, the domestic economy grew by 7.6 percent even with the slowdown to 7.2 percent in the last quarter, from the previous three month’s 7.6 percent, due mainly to the acceleration in inflation rate.

The growth is higher than the government’s growth assumption of between 6.5 to 7.5 percent.

Standard Chartered targets inflation rate to average at 4.8 percent this year, lower than the 5.8 percent last year but still above the government’s 2 to 4 percent target band.

For 2024, the bank eyes GDP of 6 percent for the Philippines and inflation of 3.1 percent.

Koh said inflation is expected to decelerate given the same path in the prices of oil in the international market.

However, he said that since rate of price increases is expected to remain high, this might impact on consumers’ spending capacity thus, the lower growth projection.

Meanwhile, Koh said this factor is seen to be mitigated by the improvement in domestic labor conditions, citing the need for the creation of more quality jobs to support household spending.

The elevated inflation rate is expected as a reason for the Bangko Sentral ng Pilipinas (BSP) to hike its key rates by additional 50 basis points in the first quarter of the year, hold until the third quarter and then cut by 50 basis points in the last quarter.

Koh said the less restrictive monetary policy by the end of this year is needed to help support growth of the domestic economy.

He said while the economy continues to recover from the pandemic, the output remains less robust than where it was in 2018-2019.

“Even if growth recovery is a bit nascent, I don’t see BSP keeping rates in restrictive territory,” he said, noting “but of course, that would depend on inflation.”

Aside from the policy rates, the BSP is also expected to cut banks’ reserve requirement ratio (RRR) by the second quarter of this year.

Big banks’ RRR, which is the percentage of deposits and other liquid assets that banks hold and is required to keep, was last adjusted in March 2020 when it was reduced by 200 basis points to 12 percent to boost liquidity during the pandemic.

The BSP aims to bring down RRR level in the country to single digit this year. (PNA)