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BMI maintains PHL GDP estimate at 5.9% amid softer exports, investment

BMI Country Risk & Industry Research said it maintained its 5.9% growth forecast for the Philippines this year, remaining of the view that exports and investment will weaken.

In a webinar on Tuesday, BMI Asia Country Risk Analyst Shi Cheng Low said the slowdown from last year’s 7.6% will be mainly driven by weaker exports and investments, despite the stronger-than-expected expansion in the first quarter.  

The Philippine economy grew 6.4% in the first quarter, moderating from 8% a year earlier. 

Household consumption eased to 6.3% in the three months to March from 7% a quarter earlier.

“Externally, weak global demand will actually drag down Philippine exports… Domestically, we think that interest rates will be capped at multi year highs of 6.25%, which will weigh on domestic activity given the 425 basis points (bps) worth of hikes,” Mr. Low said.  

The Bangko Sentral ng Pilipinas (BSP) brought the key policy rate to a near 16-year high of 6.25% before pausing in March.

“The good news is that the tightening cycle is over (due to) falling inflation, softening economic activity and the imminent end of the US tightening cycle,” Mr. Low said.

Headline inflation slowed for a fifth straight month in June to 5.4% from 6.1% in May. Still, this marked the 15th straight month that inflation exceed the central bank’s 2-4% target band.

In the first six months, inflation settled at 7.2%, exceeding the BSP’s 5.4% forecast.

“However, we do not expect any cuts in 2023 given still elevated inflation and as the currency remains vulnerable to further weakness, especially if the central bank loosens monetary policy prematurely,” Mr. Low said.

“We think the rate cuts will only materialize in the first half of 2024 alongside other major central banks. Our policy rate forecasts are however skewed to the upside,” he added.

The Federal Reserve also paused its tightening cycle in June, after raising 500 bps to 5-5.25%. However, Fed officials have signaled that the US central bank may still hike rates this year amid sticky inflation and robust economic activity.

Then-BSP Governor Felipe M. Medalla has said it is dangerous to cut faster than the Fed, which could cause unwanted volatility in the peso, leading it to depreciate.

The BSP will next meet on Aug. 17 to discuss policy settings. — Keisha B. Ta-asan

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