The Philippines is expected to be one of two economies to post the fastest growth in the Asean+3 region this year, according to a report published by the Asean+3 Macroeconomic Research Office (AMRO) yesterday.
According to the annual flagship report, Asean+3 Regional Economic Outlook 2022, the Philippines is projected to have the fastest growth in the region, together with Vietnam, with both countries estimated to expand by 6.5 percent this year.
These are followed by Malaysia with a growth projection of six percent, while the rest of the countries are seen to grow below six percent.
For 2023, the Philippines is seen to still post a strong growth of 6.5 percent, although only coming second to Vietnam which has a growth outlook of seven percent.
“(Growth this year) will be led by government spending and also recovering private sector spending. The Philippine economy has a pretty large output gap, so we expect that private spending will bounce back very rapidly once the economy is open much more fully,” Hoe Ee Khor, AMRO chief economist, said in a virtual briefing.
“So we are quite confident that you know this 6.5 percent growth can be achieved this year, and we expect growth of another 6.5 percent for next year,” he added.
Meanwhile, inflation in the Philippines is seen to go up to 4.1 percent this year, while slowing down to 3.5 percent next year.
“Inflation has ticked up, it’s really above the upper band of the target band. So we expect inflation to remain above the target band for most of the year. Inflation is driven mostly by increases in fuel prices and food, so they are basically supply driven, supply shocks. As I mentioned earlier, the Philippine economy still has a negative output gap. They have not fully recovered to pre-pandemic levels, so demand is still, I wouldn’t say it’s very weak, but it’s still modest. So on the demand side, we don’t see very strong impetus to growth,” Khor said.
“So because of that, I think, if inflation is likely to decline down to within the target band by next year, and we don’t see the need to raise policy rates, per se. Having said that, it’s important to make sure that inflation doesn’t become entrenched. And there’s scope I think for the BSP (Bangko Sentral ng Pilipinas), for the central bank to start considering withdrawing some of the policy stimulus you know, as the economy continues to gain traction and growth continues to recover,” Khor added.
According to the report, the Philippine economy continues to face several risks and challenges, with a potential resurgence of coronavirus infections remaining as the biggest threat to the recovery in the short term.
“Firm solvency continues to pose a risk to the financial health of the banking sector. The impact from these two risks may have abated somewhat; however, capital flow volatility is set to rise in 2022 as global financial conditions tighten,” the report said.
“In addition, some lasting damage caused by the pandemic as well as new trends catalyzed by the pandemic, have become clearer, raising the urgency for the authorities to take action to ensure resilient, sustainable and inclusive long-term growth,” it added.
