Growth On Track To Hit 6-7% --- BSP

The Philippines is on track to grow by as much as 7.0% this year, but a global economic slowdown amid tighter monetary conditions and elevated inflation is a key risk, according to the central bank.

Photo Insert: The slower global growth forecasts of these multilateral institutions were due to tighter monetary conditions and elevated inflation all over the world.

The Philippine economy’s growth prospects remained “favorable” in the near term, the Bangko Sentral ng Pilipinas (BSP) said in reply to questions.

The expected growth over the near term is supported by the expansion in the industry sector as manufacturers signaled greater local demand, as well as the release of pent-up demand from China’s reopening,” it said.

In April, the Development Budget Coordination Committee (DBCC) kept the growth target at 6-7% for 2023 and 6.5-8% for 2024 to 2028. It will meet on June 9 to review its macroeconomic targets.

Improved labor conditions, increased tourism demand and continued face-to-face schooling would support growth in the country’s service sector, said the central bank, which is a member of the DBCC.

“In addition, the scheduled reduction in personal income taxes this year from the Tax Reform for Acceleration and Inclusion or TRAIN Law is expected to boost household consumption,” the BSP said.

Under the law, there will be personal income tax cuts starting Jan. 1. Taxpayers whose annual taxable income is below P250,000 are exempt from personal income tax. Those whose income is more than P250,000 but less than P8 million will pay lower taxes between 15% and 30%.

The tax rate on people earning more than P8 million was raised to 35% from 32%. “Nonetheless, the emerging forecasts for the Philippine economy remain fluid and dominated by significant downside risks, mainly from the projected slowdown in global growth,” the BSP said.

Global growth is expected to drop to a three-decade low of 1.7% in 2023, according to the World Bank’s latest Global Economic Prospects report.

In its World Economic Outlook in April, the International Monetary Fund (IMF) expected global expansion at 2.8% this year, lower than its April 2022 projection of 3.6%.

The slower global growth forecasts of these multilateral institutions were due to tighter monetary conditions and elevated inflation all over the world. In the Philippines, the BSP has increased its key policy rate by 425 basis points (bps) since May last year, bringing it to 6.25%.

The Monetary Board paused tightening on May 18, but inflation remains above its 2-4% target.

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