Business consultancy firm McKinsey & Company pegged the Philippines’ growth potential this year between 5 percent and 6 percent.
McKinsey said on a bear case scenario, the Philippines could lodge 4.8 percent growth against the backdrop of “challenging conditions that could keep policy rates high and slow down private consumption, resulting in slower long-term growth.”
A base case scenario would see the Philippine economy growing by 5.2 percent if “inflation moderates, and global conditions turn out to be largely favorable due to a stable investment environment and regional trade demand.”
McKinsey’s bull case has the Philippines growing by 6.1 percent as “inflation slows, and public policies accommodate aspects such as loosening key policy rates and offering incentive programs to boost productivity.”
McKinsey, however, said it expects inflation to “temper” between 3.2 percent and 3.6 percent compared to last year’s 6 percent, and above the government’s target range of 2 percent to 4 percent.
The recovery of the financial services sector is on track and is likely to continue growing at about 5 percent, it added.
“Financial inclusion and digitalization are contributing to growth in this sector in 2024, even if new challenges emerge,” it said, noting that the Bangko Sentral ng Pilipinas continues to invest in financial inclusion initiatives.
This resulted in the basic deposit accounts (BDAs) in the Philippines reaching $22 million last year.
McKinsey expects digital channels to continue to grow, with data showing that 60 percent of adults who have a mobile phone and internet access have done a digital financial transaction.
Growth in unsecured lending is also expected to continue, but at a slower pace than the past two to three years, it added.
“For example, unsecured retail lending for the banking system alone grew by 27 percent annually from 2020 to 2022,” it said.
It expects interest rates to decline in the second half of the year, creating more accommodating borrowing conditions that could boost wholesale and corporate loans.
“Supportive frameworks have a pivotal role to play in unlocking growth in this sector to meet the ever-increasing demand from the financially underserved. For example, financial literacy programs and easier-to-access accounts – such as BDAs – are some measures that can help widen market access to financial services. Continued efforts are being made to build an open finance framework that could serve the needs of the unbanked population, as well as a unified credit scoring mechanism to increase the ability of historically under-financed segments, such as small and medium-sized enterprises (SMEs), to access formal credit,” it said.
McKinsey said unlocking growth could rely on “supportive frameworks and environment to meet rising demand from the financially underserved.”
The outlook for the energy sector, meanwhile, indicates it could grow by 7 percent this year.
Upgrading the transmission grid to make it more flexible and better able to cope with the intermittent electricity supply can be critical as the sector pivots toward renewable energy, McKinsey said.
“Positioning natural gas as a transition fuel could stimulate exploration and production investments. Lastly, the increasing momentum of green energy auctions could facilitate the development of renewables at scale,” it added.
In healthcare, businesses may end up benefiting from universal healthcare policies.
“If initiatives are implemented that integrate healthcare systems, rationalize copayments, attract and retain talent, and incentivize investments, they could potentially help to strengthen healthcare provision and quality,” McKinsey said.
“Digital and data transformations are being seen to facilitate improvements in healthcare delivery and access, with leading digital health apps getting more than one million downloads. Digitization may create an opportunity to develop healthcare ecosystems that unify touchpoints along the patient journey and provide offline-to-online care, as well as potentially realizing cost efficiencies,” it added.
