Local output growth measured as the gross domestic product (GDP) is forecast to ease further this year to 5.4 percent, lower than last year’s growth print of 5.6 percent, analysts at the Manila unit of the Dutch giant ING said on Monday.
Expected to be robust initially in the first half averaging above 6 percent, local output expansion was seen moderating sharply in the second half in rates lower than 5 percent.
“Growth looks robust yet below par as handicaps persists,” ING Bank senior economist Nicolas Mapa said in summing up the growth outlook.
He noted that capital formation as growth driver has proven weaker than projected as consequence of central banks including the country’s own, the Bangko Sentral ng Pilipinas, having had to raise interest rates to put a lid on then rising inflation even as the national government has to open the taps and spend more to optimize expansion.
This year, private investment and public sector spending look to be the missing link in boosting capital formation, Mapa said.
Capital formation rising from a 5.7 percent expansion in 2021 to 7.6 percent in 2022 eased to only 5.6 percent last year when consumption activities accounted for the bulk or 4.2 percent of that growth, government construction only 0.6 percent and private investments only 0.7 percent.
Government spending has steadily diminished from growth averaging 60.9 percent in 2021 to 6.9 percent in 2022 then only 2.9 percent last year. Public sector spending was seen perking up again this year by growing 5 percent more or less, Mapa said.
He noted that so-called household revenge spending that persisted throughout last year should persist along the growth path this year but expressed the apprehension that consumer spending is pushed forward in the main by borrowing.
Mapa showed data from the BSP indicating credit card borrowings having gone up from P428.88 billion in January 2022 to P680.21 billion by July last year. Motor Vehicle sales for the period similarly jumped from P453.13 billion to P502.44 billion and salary-based general purpose loans also sharply up from P213.02 billion to P425.69 billion.
“Consumer borrowing has risen sharply with notable increases in credit card usage, motor vehicle loans and salary-based general purpose consumption loans. While savings rates have been improving, they have yet to return to pre-pandemic levels – indicating that lower income households are saving even less than they were during the pandemic,” he said.
On inflation, Mapa forecasts within-target rate averaging 3.3 percent this year as the rate at which prices change likely average 2.9 percent in the first quarter, 3.3 percent in the second quarter, 3.1 percent in the third quarter and 3.4 percent in the final three months.
“While spikes may be possible, even worst-case scenario analyses still have inflation rates within target on average,” he said.
Mapa also said the BSP remains inflation-focused and likely timing its monetary policy adjustments on any pivot made by the US Federal Reserve.
With the BSP under the leadership of governor Eli Remolona, the central bank was seen to stay hawkish and likely cut the rate at which it borrows from or lends to banks in small increments of maybe 25 basis points, Mapa said.
