Inflation, weak demand a drag on growth till ’23 Q2


HIGH inflation and weak external demand will cast a dark cloud over the country’s economic growth prospects until the second quarter of next year, according to Oxford Economics.

In its latest Asia Pacific: Macro Snapshot, Oxford Economics said the Philippine economy’s growth may have peaked in the third quarter and is already expected to slide in the last quarter of this year.

The dark spell of inflation will reduce domestic consumption, the primary driver of the Philippine economy. Weak external demand, meanwhile, which stemmed from tighter financial conditions being felt worldwide, will also negatively affect the economy.

“In the Philippines, consumer spending unexpectedly surged—with the boost to incomes from reopening outweighing the impact of higher inflation. But we still expect growth momentum to slow across the board in Q4 (fourth quarter) 2022 and H1 (first semester) 2023 as external demand weakens and domestic demand is constrained by relatively high inflation and tighter financial conditions,” Oxford Economics said.

In terms of commodity prices, Oxford Economics said the Philippines along with Japan and Vietnam have been plagued by high food price inflation. Nonetheless, it said, pressures from energy prices, weakening currencies, and supply-chain issues have already eased.

But, a concern, according to Oxford Economics, is that most Asia and the Pacific economies are still operating below capacity and that “inflation expectations have generally stayed well-anchored.”

Monetary authorities in the Asia and the Pacific region have been raising policy rates and continued these actions through November. But the responses differ from those who chose to follow in the footsteps of the US Federal Reserve and those who chose to chart their own paths.

The Philippines is an example of those following the Federal Reserve. It hiked its interest rates by 75 basis points to 5 percent last November 17 (full story here:

The Reserve Bank of Australia, however, chose to follow a different path by raising interest rates  by only 25 basis points. “Notwithstanding the idiosyncratic pace of tightening, the overall environment suggests a higher peak for policy interest rates early next year than we had expected in October,” Oxford Economics said.

The think tank said of the six major Asian economies to announce third quarter GDP performance in November, both Malaysia and the Philippines reported much stronger-than-expected numbers, prompting upgrades for 2022 as a whole.

Thailand may be one exception where growth is stronger in 2023 than in 2022 on the back of its rebounding tourism industry.

Earlier, the National Economic and Development Authority (Neda) said the government is now within striking distance of its GDP growth target for 2022 after the Philippine Statistics Authority (PSA) announced that the economy grew faster in the third quarter.

The PSA reported that the economy expanded by 7.6 percent in the third quarter. This is faster than the 7.5 percent posted in the second quarter of the year and the 7 percent recorded in the same period last year.

The latest GDP print brings the average growth in January to September to 7.7 percent. The government’s GDP growth target for the year is 6.5 percent to 7.5 percent (Full story: