The ASEAN+3 Macroeconomic Research Office (AMRO) has maintained its growth forecast of 6.3 percent for the Philippines this year, citing the recovery in exports in the region, increased government spending to stimulate the economy, and decelerating inflation.

Singapore-based AMRO chief economist Hoe Ee Khor said they also did not change the gross domestic product (GDP) forecast for 2023 of 5.6 percent which was lower than its previous projection of 5.9 percent. Both the 2023 and 2024 forecasts were previously announced in October 2023.

For the first three quarters of last year, the local GDP grew 5.5 percent, below the government’s six percent projection. The full-year GDP report will be released on Jan. 31.

In the latest January 2024 quarterly update of AMRO’s flagship report AREO or the ASEAN+3 Regional Economic Outlook, Khor said the growth numbers have been maintained amid strong domestic demand while inflation is decelerating.

“We have (reduced) growth for the Philippines down from 5.9% to 5.6% last year based on weaker outturn in the fourth quarter. As it turns out, we may be too optimistic on the growth momentum (and it’s) a bit weaker than we expected,” he said in a press briefing Thursday, Jan. 18.

He also said they cut the growth for this year from 6.5 percent to 6.3 percent for the same reason, which was a less than robust growth momentum.

Khor reiterated that at 6.3 percent GDP growth outlook for 2024, the country’s economic expansion is still the highest growth projection in the region. “The Philippine economy has held up very well despite high inflation and high interest rates. And, it is much less dependent on exports than other countries in the region. Nevertheless it is still affected by the weak exports last year,” he told reporters.

He further explained that “the reason why growth was somewhat weaker in the fourth quarter could also be that the interest rates are already high. But, we need to keep rates relatively tight in order to make sure that inflation goes down.”

The Bangko Sentral ng Pilipinas (BSP) currently has a 6.5 percent target reverse repurchase (RRP) rate which is the policy rate, from a cumulative 450 basis points rate increase since May 2022 to contain high inflation and lessen the pressure off the volatile exchange rate.

Khor said that as far as the central bank’s hawkish stance is concerned -- “we agree with BSP’s view the rates should remain tight until inflation has come down to within the target” of two percent to four percent.

The average inflation for 2023 stood at six percent. “We expect (inflation) to come down to 3.6 percent this year which is within the inflation target band but is above the midpoint. So by the end of this year, we expect the rate to be much closer to the (target) and also to some extent, it depends on what happens in the US and if the Fed (US Federal Reserve) will cut rates by the middle of this year. There may be scope for the Philippines to do likewise,” said Khor.

“As for the economy, it is doing strongly. It’s doing well. We don’t see BSP cutting rates soon,” he added.

The government as of December 2023 has a growth target of six percent to seven percent for 2023; 6.5 percent to 7.5 percent for 2024; and 6.5 percent to eight percent growth assumption for 2025 to 2028.

Based on the January 2024 AREO, AMRO still sees ASEAN+3 region or ASEAN plus Japan, China and South Korea to record a growth of 4.5 percent this year on the back of the strong domestic demand, lower inflation and improving trade despite uncertainties in the global growth outlook.

The Philippines has the highest growth forecast in the region at 6.3 percent for 2024, followed by Cambodia with 6.2 percent; Vietnam with six percent; Indonesia with 5.2 percent; Malaysia with five percent; Lao PDR with 4.7 percent; Thailand with 3.3 percent; Myanmar with 3.2 percent; Singapore with 2.6 percent; and Brunei Darussalam with 2.4 percent.

The ASEAN+3 region is also expected to end 2023 with a 4.4 percent growth to reflect its better outlook on China’s prospects for a recovery, as well as the region’s gradually improving exports.

“The recovery in the global tech cycle is starting to be felt in the region’s export performance, especially for electronics,” said Khor. “But non-tech exports are lagging behind in terms of recovery, which is why recent manufacturing sentiment surveys are relatively mixed,” he added.

Khor also pointed out that exports to most major markets such as the US have picked up.

Meanwhile, the latest AREO pointed to price pressures as continuing to decline across the region. Inflation in the ASEAN+3 region—excluding Lao PDR and Myanmar—is forecast to moderate to 2.6 percent this year from an estimated 2.8 percent for 2023. However, upside risks to inflation remain salient, and core inflation continues to be high in many economies, said AMRO.

“Spiking global commodity prices remains the key risk to growth, but there are several other wildcards. We still cannot rule out a US recession, for one,” Khor cautioned. “The lead-up to the US election in late 2024 could also exacerbate policy uncertainty and volatility in financial markets,” he added.

AMRO said it “estimates that a recession in the US and euro area this year could potentially slash the region’s GDP growth by half.”

“The negative impact on the region’s growth would be amplified if the momentum in China’s economic recovery weakens in tandem,” according to the report.

AMRO is an international organization established to contribute toward securing macroeconomic and financial stability of the ASEAN+3 region. Its mandate is to conduct macroeconomic surveillance, support regional financial arrangements, and provide technical assistance to the members.