THE ASEAN+3 Macroeconomic Research Office (AMRO) kept its growth projection for the Philippines this year, but cut its gross domestic product (GDP) forecast for 2023 amid inflationary pressures and the threat of a global recession.
In the AMRO Regional Economic Outlook Update released on Thursday, the think tank said it kept the estimate at 6.9% this year, within the government’s 6.5-7.5% target.
However, AMRO slashed the Philippines’ GDP forecast to 6.3% for 2023, from the 6.5% projection given in July, as the global growth outlook dims.
“All the countries are facing stronger headwinds going forward because of the slowdown. We expect a slowdown in the US and maybe a recession in Europe. Because of that, the external demand is much weaker,” AMRO Chief Economist Hoe Ee Khor said at a virtual press conference, adding this may affect remittances from overseas Filipinos.
He also noted the impact of high inflation on consumer demand in the country. Inflation surged to 6.9% in September, as prices of food, transport and utilities continue to rise.
“And the inflation rate in the Philippines is quite high. We think it’s going to peak this month or next month and begin to come off. But its dampening demand in the Philippine as well,” Mr. Khor said.
AMRO raised its average inflation forecast for the Philippines to 5.1% this year from the 4.4% estimate made in July. This is above the Bangko Sentral ng Pilipinas’ (BSP) 2-4% inflation target band, but lower than the BSP’s 5.6% average inflation forecast for the full year.
For 2023, AMRO raised its inflation forecast to 4%, from 3.8%.
“Inflationary pressures are very high. Global financial conditions have tightened considerably. Aggressive tightening of the Fed policy has put pressure on regional currencies,” Mr. Khor said.
The Monetary Board has key rates raised by 225 bps since May as it sought to tame inflation.
“I know the peso has depreciated quite a bit but even so, the depreciation is pretty much lower than Thailand, Korea and Japan,” Mr. he said, adding that the widening current account deficit affecting the local currency.
The Philippine peso closed at a record-low of P59 against the US dollar on Monday. Year to date, the peso has weakened by P8 or 15.6% from its Dec. 31, 2021 close of P51.
“But at the same time, the currency is depreciating in line with most of the countries in the region. And so, I don’t think the 15% depreciation is excessive in a sense. It’s also helping the Philippines because it’s actually attracting more remittances and supporting the export sector,” Mr. Khor added.
Meanwhile, AMRO also downgraded its growth projection for the ASEAN+3 region to 3.7% from 4.3%, which reflected the impact of the prolonged Russia-Ukraine war and tighter global financial conditions. It also lowered the growth outlook for 2023 to 4.6% from 4.9%.
The region is composed of the 10-member Association of Southeast Asian Nations (ASEAN), China, Japan and South Korea.
“Although the region is rebounding, they are facing stronger headwinds, and the headwinds are going to get stronger as we enter into the new year,” Mr. Khor said.
The think tank raised the ASEAN+3 inflation forecast to 6.2% for this year from 5.2% “due to persistent cost-push factors, weaker exchange rates, and the more robust recovery in domestic demand, especially in ASEAN.”
AMRO also hiked its inflation projection for ASEAN+3 next year to 3.4% from 2.8%.
“Price pressures are expected to ebb across the region next year, as global oil and agricultural commodity prices continue to moderate and supply chain bottlenecks continue to unwind,” AMRO said.
For the ASEAN region, AMRO raised the GDP outlook to 5.3% this year, from 5.1%. It lowered its GDP projection for ASEAN to 4.9% next year from 5.2% previously.
AMRO raised the inflation forecast for the ASEAN region to 7.6% this year from 6.2%. It also raised the inflation projection for 2023 to 4%, from 7.6%. — Keisha B. Ta-asan