Standard Chartered, a British banking giant, predicts that the Philippine economy will only grow by 5.3 percent in 2023, which is below the government’s forecast range. This slower growth is attributed to high interest rates and a decrease in consumer spending.
According to Jonathan Koh, an Asia economist at Standard Chartered, the Philippines is still one of the fastest-growing economies in the region. However, this growth is mainly due to the “base effect” from the slower pace of expansion in the past.
Koh mentioned during a media briefing that the country’s economic growth is expected to slow down from last year’s 7.6 percent and fall below the government’s forecast of 6 to 7 percent.
He also stated that consumer spending will remain a key driver of the economy, but he anticipates that the pent-up demand unleashed during the post-pandemic era will revert to a more moderate level in the second half of 2023. The bank reported that consumer spending growth in the first quarter of 2023 slowed to 1.4 percent, the lowest in three quarters.
The cooling inflation could provide some support to the economy, with expectations that it will drop below 4 percent in the fourth quarter of 2023. However, risks of food inflation will persist, and the bank’s full-year inflation forecast stands at 5.6 percent.
Regarding foreign investments, the Philippines continues to struggle due to the high domestic and global interest rate environment. Koh explained that companies consider the return on investment (ROI) when making investment decisions, and it is currently challenging to find an attractive enough ROI to justify the high funding costs.
Nevertheless, Koh believes that easing inflationary pressures in the coming months will give the Bangko Sentral ng Pilipinas room to start cutting interest rates. He expects a 25-basis-point cut as early as December this year and further reductions of 50 basis points per quarter through the third quarter of 2024.
