Philippine economy sustains momentum in H1 2023 despite challenges

Inflation, despite evidencing moderation, is projected to linger at elevated levels, fuelled by robust demand. Forecasts suggest a reduction to 5.5 per cent in 2023, further decreasing to 3.8 per cent in 2024. Persistent core inflation arises from a positive output gap coupled with repercussions from hikes in minimum wages and persistent inflation expectations, ASEAN+3 Macroeconomic Research Office (AMRO) said in a press release.

Externally, the deficit in the current account was partially counterbalanced by net capital inflows, while holding a healthy international reserve buffer and low external debt ensured a sturdy external position. Improved fiscal standing in 2023 owes much to solid revenue accumulation and moderated expenditure.

The Philippine government has adopted a stringent monetary policy to curb rising inflation, increasing the policy interest rate by 425 basis points from May 2022 to March 2023. The 2024 fiscal blueprint is grounded in a medium-term fiscal framework aspiring to trim the fiscal deficit further.

As the nation navigates these turbulent waters, a harmonised policy blend leaning on tight monetary policy and constrictive fiscal posture is seen as fitting to tackle persistent inflationary pressures.

“Philippines’ economic growth is projected to moderate to 5.9 per cent in 2023 due to high base effects and weaker external demand, before edging up to 6.5 per cent in 2024 as external demand recovers. Meanwhile, domestic demand is expected to remain robust supported by continued improvement in labour market conditions, lower inflation, robust overseas remittances, and higher government infrastructure spending,” said Dr Runchana Pongsaparn, group head and principal economist.

ALCHEMPro News Desk (NB)