Abacus Securities Corp. said the Philippines’ growth this year may fall short of the government’s target of 6 to 7 percent as the challenges from 2022 spill over.
“Consumers won’t prop up the economy forever and government expenditures will probably be constrained. Capital formation is unlikely to pick up the slack as this will be affected by higher interest rates,” Abacus said in a note.
“GDP growth this year, therefore, will be decent (5 percent to 5.5 percent) but it will fall short of government targets,” it added, noting this growth will at best be neutral for the equities market.
The Development and Budget Coordinating Committee revised downward its growth target for the year from the previous 6.5 to 8 percent.
Abacus said economists put this year’s economic growth at an average of 5.48 percent, more than a full percentage lower than the midpoint of the government’s range.
“One common denominator why private economists are less sanguine is the impact of higher interest rates which tends to have a lagged effect,” it said.
Abacus also noted the Philippines is lagging behind most of its neighbors in terms of nominal GDP growth, only ahead of Thailand which is more dependent on tourism revenues.
In nominal GDP, based on a 12 month trailing GDP as of end-September 2022, Philippines’ 108.8 percent GDP growth is lower compared to Vietnam’s 168.4 percent, Indonesia’s 120.2 percent, and Malaysia’s 115.4 percent, Abacus Securities said. Thailand has a GDP growth of 101.7 percent.
Abacus said with the US Fed on track to bring its own benchmark rate above 5 percent by yearend, the BSP will probably have to push its reverse repurchase rate to 6 percent, the steepest tightening since 2000.
“The cumulative hikes since the start of last year would be 400 basis points which will further hamstring economic activity,” it said.
Abacus said with a high debt-to-GDP ratio for the Philippines as a result of the COVID-19 pandemic, there is limited scope for the government to pump prime the economy.
“Higher interest rates also increase the borrowing costs for the government,” it said.
Abacus Securities said growth may be curtailed by a possible spike in power costs.
Revenge spending may have already peaked and the positive impact of a weaker peso on OFW families spending should also begin to fade by mid-year.
“And later this month, the Bangko Sentral is likely to lift the cap on credit card interest rates, possibly from 2.0 percent to 2.5 percent per month,” it said.
