S&P GLOBAL RATINGS revised its Philippine economic growth forecast upwards to 7.1% this year, but sees slower growth in 2023 due to the impact of higher interest rates and elevated inflation.

In a Nov. 27 report titled “Global Slowdown Will Hit, Not Halt, Asia-Pacific Growth,” S&P raised its Philippine gross domestic product (GDP) forecast to 7.1% this year, faster than the 6.3% estimate it gave in September.

However, S&P trimmed next year’s GDP growth projection to 5.2%, from 5.7% previously. This is below the government’s 6.5-8% growth goal for 2023.

The credit watcher said strong consumption in economies such as the Philippines will lift the average Asia-Pacific regional growth next year.

“Asia-Pacific will be a bright spot in the global economy in 2023. S&P Global Ratings assumes that domestic resilience and solid growth in mainland China — albeit off a weak base — will keep regional growth at a healthy level. Strong consumption in the more domestically led economies of India, Indonesia, and the Philippines will also lift the average,” it said. 

The Philippine economy grew by 7.6% in the third quarter, faster than the revised 7.5% in the second quarter. Average growth in the first nine months stood at 7.7%, still above the government’s 6.5-7.5% full-year target.

S&P also said domestic demand recovery would boost growth in the Philippines next year.

“In some countries the domestic demand recovery from COVID has further to go. This should support growth next year in India, Indonesia, Malaysia, the Philippines, and Thailand,” it said.

“Improving inbound tourism should support growth in (Malaysia, the Philippines, Thailand) and Japan, although the resumption of Chinese tourist arrivals will likely not happen before late 2023.”

Rising interest rates will have a “pronounced hit” on growth in some economies, it added.

“We expect GDP growth in Asia-Pacific ex-China to slow to 3.9% in 2023, from 4.8% in 2022, before picking up to 4.4% in 2024,” S&P said.   

The Bangko Sentral ng Pilipinas (BSP) increased its benchmark rate by 75 basis points (bps) to 5% — the highest in nearly 14 years. It has so far hiked rates by 300 bps since May to tame inflation.

Headline inflation accelerated to a near 14-year high of 7.7% in October. In the 10-month period, inflation averaged 5.4%, still lower than the BSP’s revised 5.8% full-year forecast.     

The credit watcher expects Philippine inflation to average 5.5% this year and 4.3% in 2023, still above the BSP’s 2-4% target. It sees inflation easing to 2.7% in 2024.   

S&P said it expects the BSP policy rate to reach 5.5% this year, indicating a 50-bp rate hike at its December meeting. The BSP is seen to maintain the benchmark rate next year, before cutting it to 4% in 2024.

S&P Global Ratings earlier this month affirmed the Philippines’ investment grade “BBB+” rating.

“The Philippines’ economy is rebounding healthily, spurred by strong domestic demand as the country lifts mobility restrictions and fully reopens,” S&P has said.

The credit rater said it kept a “stable” outlook on the Philippines, reflecting expectations of the economy’s recovery, and that the fiscal deficit “will decline significantly” within the next two years.

Under S&P’s global rating scale, “BBB+” is considered an investment grade rating, and reflects a sovereign’s “adequate capacity to meet financial commitments, but more subject to adverse economic conditions.” — Keisha B. Ta-asan