ING, a bank and financial services firm based in the Netherlands, published its forecast that the economy of the Philippines will grow by 5.4% this year, according to a Manila Bulletin news report.
To put things in perspective, posted below is an excerpt from the Manila Bulletin news report. Some parts in boldface…
Dutch bank ING is projecting a moderate 5.4 percent growth for the Philippines this year, saying the impact of the central bank’s rate hikes could have propelled robust growth but it is handicapped by “soft” capital formation.
The 5.4 percent growth estimate is considerably lower than the government target of 6.5 percent to 7.5 percent this year. It is also lower than 2023’s full-year 5.6 percent growth, which was also below the government’s goal of six percent to seven percent.
ING senior economist Nicholas Mapa, in an ING Manila’s economic briefing on Monday, Feb. 19, said domestic growth seems strong this year but “below par as handicaps persist.”
He said one of these handicaps is the lack in capital formation as an impact of the Bangko Sentral ng Pilipinas’ (BSP) cumulative rate hikes since May 2022, for a combined 450 basis points to bring the target reverse repurchase rate or the policy rate to 6.5 percent.
Because of this, Mapa said the “missing link” for a within-target growth is private investment and a National Government spending spree not hampered by a “soft” capital formation.
Capital formation is an integral part of GDP growth. However, capital formation and growth prospects were soft in 2023 due to rate hikes and it could persist this year.
For 2024, ING also forecasts inflation of three percent versus an actual six percent in 2023. The forecast is within the BSP’s target of two percent to four percent. It is also lower compared to the risk-adjusted forecast of the BSP of 3.9 percent for 2024.
Mapa also predict the exchange rate will end with a stronger peso this year at P54.90 since he also expects the BSP’s Monetary Board will cut the policy rate by 50 basis points (bps) from 6.5 percent to six percent, thereby boosting the peso performance.
Based on his presentation during the briefing, Mapa expects the first quarter GDP will perform better at six percent compared to the fourth quarter 2023 GDP of 5.6 percent. By the second quarter, he thinks the economy will grow by 6.3 percent but then will drop to 4.7 percent by the third quarter and further down to 4.5 percent in fourth quarter this year.
He said the rate hikes impact bank lending as well as GDP growth, and that the “elevated rates (has kept) capital formation subdued after years of underinvestment.”
Let me end this piece by asking you readers: What is your reaction about this recent development? Do you think ING’s prediction will turn out correct by the end of this year? Do you think that the economy of the Philippines can somehow grow by at least 6% this year?
You may answer in the comments below. If you prefer to answer privately, you may do so by sending me a direct message online.
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