With some of the headwinds in the past year subsiding, the economy may grow even faster in 2024. This could be facilitated by further reductions in inflation and the anticipation of interest rate cuts, according to an economist.
Following the release of the 5.6 percent gross domestic product growth (GDP) in 2023, BPI’s lead economist Emilio Neri Jr. said the country’s economy remained resilient amid the headwinds affecting it last year, such as the high-interest rate environment.
He said this has helped in preventing high inflation that could have further dragged the country’s growth. In BPI’s latest market insight, Neri said they are seeing inflation slowing down in the next three months.
Inflation refers to the increase in prices of goods and services over time.
But, he also warned it may bounce back in the second quarter and could breach the four percent target again for a few months, before returning to the two to four percent range in the second half of the year.
Average inflation for 2024 is expected to settle at 3.7 percent.
The Bangko Sentral ng Pilipinas (BSP) projects January 2024 inflation to settle within the range of 2.8 to 3.6 percent.
The central bank said the higher prices of some agricultural items like rice, meat, fruits, and fish, along with increased petroleum prices, electricity, and water rates, annual adjustment in sin taxes, and the depreciation of the peso are the primary sources of upward price pressures for the month.
However, lower prices of vegetables and sugar could contribute to downward price pressures.
“Consumer and investment spending growth may accelerate further as inflation slowly moves within the fiscal year target of the central bank,” Neri said.
The January inflation report is scheduled for release on Tuesday, Feb. 6, 2024, by the Philippine Statistics Authority.
The Ayala-led bank expects full-year GDP growth of around 6.3 percent in 2024, lower than the government’s projection of 6.5 to 7.5 percent despite domestic and external headwinds.
GDP is a measure of all the goods and services produced within a country’s borders in a specific period, usually a year or a quarter.
Neri also said the central bank might be able to cut interest rates in the second half of 2024, which can provide relief to those who borrowed heavily before the 2022 rate hikes.
But the timing of future rate cuts and their magnitude also depends on what the Federal Reserve (Fed) will do. Neri said if local inflation conditions are right, the BSP will likely respond immediately with rate cuts once the Fed begins its easing cycle.
Steven Yu, former president of the Mandaue Chamber of Commerce and Industry said, the high interest rate environment has dampened both consumption and investments in durable and non-essential items.
As for businesses, Yu said many have adopted a wait-and-see attitude towards capital investments considering the weak consumer purchasing power exacerbated by high interest rates.
“While other external headwinds also play a part in slowing down the general economy, the effects of high-interest rates are finally being felt and showing its impact on the general state of business and consumer consumption,” he said.
Consumer spending growth in 2023 managed to rebound with a 5.3 percent expansion in the fourth quarter to end six consecutive quarters of deceleration.
Neri said this can be attributed to the recent slowdown in inflation, boosting confidence and purchasing power. The turnaround in household spending growth shows how resilient consumer demand was underpinned by its young population, funded with remittances and improving job opportunities.
Among the consumer items, the ones with the significant increase in spending were restaurants, hotels, transport, and recreation.
The country’s 5.6 percent growth in 2023 outpaced major economies in Asia, such as China (5.2 percent), Vietnam (five percent) and Malaysia (3.8 percent).
Charles Kenneth Co, president of the Cebu Chamber of Commerce and Industry, said the slower growth isn’t surprising, as most of the world’s economies are also slowing down.
“Our government should support economic stability and stop politicking. We have much to catch up with our neighbors and we need to create more jobs to lessen poverty,” Co said. SNS