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AMRO raises PHL growth forecast for 2022

THE ASEAN+3 Macroeconomic Research Office (AMRO) raised its growth projection for the Philippines this year amid the further reopening of the economy and rising inflation.

In the AMRO Regional Economic Outlook Update released on Tuesday, the think tank said it upgraded the Philippines’ gross domestic product (GDP) growth projection to 6.9% this year, from the 6.5% forecast previously given in April.

“We’re very optimistic on the Philippines… 6.9% is among the highest growth rate in the [ASEAN +3] region,” AMRO Chief Economist Hoe Ee Khor said during a virtual press briefing.

The new AMRO forecast is just below the government’s 7-8% target for this year.

The Philippine economy expanded by 5.6% in 2021 and by 8.3% in the first quarter this year.

“The driver for this growth is really the reopening of the economy… Despite the spike in the infection rate, we expect the economy to remain relatively open because of the vaccination,” Mr. Khor said.

Metro Manila and most areas in the country are under the most lenient Alert Level 1 until July 15, although there is an uptick in coronavirus disease 2019 (COVID-19) infections.

He also noted the main growth drivers are domestic demand and investment. He mentioned the continuation of the “Build, Build, Build” program will help further improve the infrastructure in the country.

For 2023, AMRO retained its growth forecast at 6.5%, well within the government’s 6-7% target.

The think tank also raised its average inflation forecast for the Philippines to 4.4% from the 4.1% estimate made in April. This is above the Bangko Sentral ng Pilipinas’ (BSP) 2-4% inflation target, but consistent with the Development Budget Coordination Committee’s (DBCC) forecast of 3.7-4.7%.

The BSP last month revised its average inflation forecast for this year to 5%, from 4.6%, reflecting the impact of higher oil and food prices.

For 2023, AMRO also raised its inflation forecast to 3.8%, higher than the 3.5% projection given in April.

The BSP hiked its key interest rate by 25 basis points to 2.5% for a second straight meeting on June 23 to cool inflation.

“We don’t think that the increase in the interest rate or policy rate will have significant impact on growth this year or next year,” Mr. Khor said.

“Growth is self-sustaining [and] it’s prudent for the (BSP) to raise rates now in order to create more headroom for the economy in case there’s another shock and they need to lower rate[s].”

The Monetary Board will hold its next rate-setting meeting on Aug. 18.

REGIONAL OUTLOOK
Meanwhile, AMRO downgraded its growth projection for the ASEAN+3 region to 4.3%, from the 4.7% forecast given in April, which reflected the impact of the coronavirus outbreak in China, the prolonged Russia-Ukraine war and tighter global conditions.

The region is composed of the 10 Association of Southeast Asian Nations (ASEAN) members, China, Hong Kong, Japan, and South Korea.

For 2023, AMRO raised the region’s GDP forecast to 4.9% in 2023, from 4.4% previously, and inflation projection to 2.8%, from 2.3% previously.

“Just as the ASEAN+3 region is starting to emerge from the COVID-19 health crisis, the protracted war in Ukraine and persistent inflation in the United States have ushered in a new set of challenges for policy makers,” Mr. Khor said.

On its own, the ASEAN region is expected to grow by 5.1% this year, and by 5.2% in 2023.

“The Plus-3 economies — not just China, but also Hong Kong, Japan, and Korea — saw flare-ups of COVID-19 infections and attendant restrictions that weighed on growth in the first quarter of 2022. Growth was relatively stronger in ASEAN, as economic reopening gained further traction,” AMRO said.

AMRO also upgraded the region’s inflation forecast to 5.2% this year, from the 3.5% projection given in April.

“Much of it is coming from the supply shock because of the oil prices,” Mr. Khor said.

Risks to the growth outlook for the ASEAN+3 region have increased, including sustained rise in energy and food prices and supply chain disruptions.

Other risks cited by AMRO include the sharper-than-expected slowdown in China, aggressive monetary policy tightening in the United States, and the possible emergence of new COVID-19 variants. — Diego Gabriel C. Robles

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