AMRO cuts growth forecasts amid global headwinds

THE ASEAN+3 Macroeconomic Research Office (AMRO) cut its Philippine gross domestic product (GDP) growth outlook for this year and for 2024 due to weak external demand and global headwinds.

In its Annual Consultation Report, the think tank said it expects the Philippine economy to expand by 5.6% this year, lower than the 5.9% forecast it gave in its Regional Economic Outlook Update in October.

“The Philippine economic outlook is clouded by various risk factors and challenges. In the short term, high inflation, economic slowdown in major trading partners, and volatility in global financial markets along with tighter financial conditions could pose risks,” AMRO said.

It also cited risks to long-term growth, such as scarring effects from the pandemic, slow infrastructure development, impact from climate change and natural disasters, and geopolitical tensions.

AMRO’s latest 5.6% growth projection would still be below the government’s full-year 6-7% target and slower than the 7.6% GDP expansion in 2022.

The Philippine economy expanded by 5.9% in the third quarter, bringing the nine-month average to 5.5%. Economic growth would have to reach at least 7.2% in the fourth quarter to hit the lower end of the government’s target.

“However, domestic demand is anticipated to remain robust, supported by continued improvement in labor market conditions, lower inflation, robust overseas remittances, and higher government infrastructure spending,” AMRO said.

For 2024, AMRO expects the Philippine economy to bounce back based on an “expected recovery in external demand.”

However, it slightly lowered its GDP growth forecast to 6.3% in 2024 from 6.5% it gave in October. This would fall short of the government’s 6.5-8% target for next year.

“In addition, the external services sector, particularly tourism, which will benefit from the improving local tourism industry, ongoing marketing campaign, and China’s reopening, coupled with merchandise exports, which will rebound from 2024 onwards, are expected to boost the economy,” it added.

HIGH INFLATION
Meanwhile, AMRO sees inflation averaging 6% this year, higher than the 5.5% forecast it gave earlier.

“Inflationary pressure will likely remain elevated as reflected in high core inflation. This is due to a positive output gap and second-round effects induced by increases in minimum wages and expectations of persistently high inflation,” it said.

Headline inflation eased to a three-month low of 4.9% in October from 6.1% in September. However, inflation breached the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target for the 19^th straight month. For the 10-month period, inflation averaged 6.4%, still above the BSP’s 6% full-year forecast.

Core inflation, which excludes food and fuel volatile prices, further slowed to 5.3% in October from 5.9% in September. Year to date, core inflation stood at 7%

Meanwhile, AMRO cut its inflation forecast for 2024 to 3.6% from 3.8% previously. This is below the BSP’s 3.7% projection for next year.

“Headline inflation is expected to gradually ease in the fourth quarter of 2023 and 2024, primarily due to the high base effect and lower energy prices. In addition, a normalization in global supply-chain disruptions caused by pandemic lockdowns and heightened geopolitical tensions, and the recent stabilization of the exchange rate could provide some relief from inflationary pressures,” it added.

However, AMRO still cautioned that inflationary pressures may remain elevated due to the “positive output gap and second-round effects, especially from increases in minimum wages and expectations of persistently high inflation.” — Luisa Maria Jacinta C. Jocson