Inflation may have dampened Q4 economic growth — analysts

enablePagination: false
maxItemsPerPage: 10
maxPaginationLinks: 10

Metro Manila (CNN Philippines, January 23) — Soaring commodity prices may have curbed consumer spending in the last months of 2022, with some analysts forecasting a gloomy fourth quarter economic performance.

The Philippine economy might have slowed sharply in the last quarter of 2022 as CNN Philippines' poll of 11 economists showed forecasts ranging from 4.60% to 8%, averaging 6.74% - a weaker expansion than the 7.6% growth in the third quarter.

The survey also yielded a median gross domestic product (GDP) growth estimate of 6.8%.

Meanwhile, for the full year 2022, the mean forecast of 10 economists showed the Philippines may have grown 7.41%, which is at the upper end of the government's target band.

For the fourth quarter, some economists believed Filipinos may have tightened their belts even during the festivities from the October-December period as rising inflation continued to take a bite out of their funds.

"Though the country's consumer base remains the largest driver of the economy, this was definitely dampened by high inflation especially towards the end of the year," said Mitzie Irene Conchada, an economist from De La Salle University.

This was echoed by Oxford Economics assistant economist Makoto Tsuchiya, noting that while the further reopening of more sectors last year spurred economic activities, higher inflation created a threat.

"We think the sequential momentum has decelerated as the initial reopening boost fades, while the deteriorating external outlook weighed on foreign demand as well as business and consumer sentiment. Elevated inflation, which we think peaked in Q4 (fourth quarter), also weighed on the consumer spending," said Tsuchiya, who saw a 5% GDP growth last quarter.

Hotter inflation squeezed Filipinos' wallets in December as it soared to a fresh 14-year high at 8.1%, the fastest since November 2008's 9.1%. It was also slightly higher than November's 8% inflation. 

Conchada also said the weakening of the peso against the dollar has been contributing to inflationary pressures given the country's high dependence on imports. Since the beginning of 2022, she said the local unit declined 9.98% against the greenback.

Economic managers delivered a strong policy response late last year as part of efforts to temper high prices and prop up the peso.

National Economic and Development Authority Usec. Rosemarie Edillon, meanwhile, said the government expects cooler inflation this month as they see the end of the demand shock witnessed in December.

Will economy struggle in 2023?

While the Marcos administration is confident of recording economic growth this 2023, ING Bank senior economist Nicholas Mapa said the year could be "a challenging one" for the Philippines amid high inflation and borrowing costs, coupled with the government's mounting debt.

"The 6.5% official target and the 7.0% unofficial targeted of the President will be a tall order as the odds are stacked again the Philippines, all the more with the global economy expected to face a recession," Mapa said.

Tsuchiya also said Filipinos would soon feel the monetary tightening implemented last year, which makes borrowing more expensive, discouraging consumers from spending more.

"We look for the Philippines economy to grow only 3.1% in 2023 amid mounting headwinds," Tsuchiya said.

On the other hand, Ser Percival K. Peña-Reyes, associate director at the Ateneo de Manila University Center for Economic Research and Development, expressed optimism about 2023 banking on the possible endemic state of COVID-19, reopening of the Chinese economy, and the potential peace between Russia and Ukraine.

"These three will shake the global economies and cause a global shift from gloom to optimism," Reyes said.

Rizal Commercial Banking Corporation chief economist Michael Ricafort also said the tax cuts on personal income starting January would boost consumer spending, which accounts for at least 70% of the economy.