The Philippines emerged as Southeast Asia’s fastest-growing economy in 2023, outpacing both Vietnam and Malaysia. Gross domestic product (GDP) expanded by 5.6%, exceeding the median growth rate of 5.5% predicted by economists in a Bloomberg survey. In the final quarter of the year, the economy maintained a similar growth pace, registering a 2.1% increase on a quarter-on-quarter basis. This positive economic data led to a more than 1% increase in stock values while the peso experienced a slight 0.1% decrease against the dollar.
Leading the Region
Although the annual growth rate fell slightly short of the government’s 6-7% target, it remained the highest in Southeast Asia, surpassing Vietnam’s 5.05% growth performance. Malaysia, which boasted the region’s highest growth rate in 2022 at 8.7%, likely slowed to 3.8% in 2023. Indonesia and Thailand are expected to release their economic data next month.
Optimism for 2024
National Economic and Development Authority Secretary Arsenio Balisacan expressed confidence that the Philippines’ economy will continue to expand at a rate of 6.5-7.5% in 2024, allowing the country to maintain its position as the region’s top performer. President Ferdinand Marcos Jr. shared this optimism, highlighting the consumption-driven economy’s prospects as inflation cools and the central bank’s aggressive interest-rate tightening campaign comes to a halt.
However, sustaining this impressive growth requires substantial efforts from the government, as monetary policymakers are unlikely to shift towards easing due to lingering price risks. The Philippines, where consumption accounts for approximately 75% of GDP, also faces increasing geopolitical tensions with China over the South China Sea. Domestic political tensions have escalated recently, with President Marcos and his predecessor Rodrigo Duterte trading accusations related to drug use.
Key Highlights from the Fourth-Quarter GDP Report
- Agricultural sector output increased by 1.4% compared to the previous year.
- Industry sector output grew by 3.2% year-on-year.
- The service sector expanded by 7.4% on an annual basis.
- Consumer spending saw a 5.3% growth from the previous year.
- Investment surged by 11.2% year-on-year.
Despite a 1.8% decline in government spending aligned with fiscal consolidation efforts, Balisacan expects the services sector to continue driving the economy’s growth trajectory.
Despite resilient consumer spending, a sluggish global economy, high inflation rates, and elevated interest rates pose challenges to significant growth improvements in 2024. According to Robert Dan Roces, Chief Economist at Security Bank Corp in Manila, “The growth momentum now falls on government spending.”
BSP’s Monetary Policy and Future Prospects
With GDP holding steady and the peso weakening, it is likely that the Bangko Sentral ng Pilipinas will maintain tight monetary policy settings at its next meeting on February 15. While household spending remains robust, and capital spending is recovering, the central bank is expected to begin rate cuts later in the year, contingent upon the Federal Reserve’s actions to alleviate currency pressures, according to Tamara Mast Henderson, Asean economist at Bloomberg Economics.
Inflation and Rate Hikes
Even though inflation slowed to within the central bank’s 2-4% target range in December, the possibility of rate hikes still lingers, especially with rising food prices. Further tightening by the central bank could jeopardize the consumption-led recovery in the economy. Governor Eli Remolona recently emphasized that strong economic growth provides policymakers with “a bit more room to hike.”
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