PH Economy Faces External Headwinds

The Philippines is on track to be one of the fastest-growing economies in the Asia-Pacific region this year, Moody’s Analytics said but faces risks from China’s slow economic recovery and a potential reacceleration of inflation arising from Russia’s exit from the Ukraine grain deal, India’s rice export ban, and El Niño.

Photo Insert: Visitor arrivals from China are at about only 18-20% of their pre-pandemic levels.

Moody’s Analytics Chief Asia-Pacific Economist Steven Cochrane said the expansion of the Philippine economy will mainly be supported by strong domestic demand and high infrastructure spending this year.

“The Philippines is actually one of the faster-growing economies in the region and there are a number of positive factors that are helping the Philippine economy. One, inflation has come (down) quite a bit and that’s a good sign,” Mr. Cochrane said in a webinar.

Stable remittances and foreign direct investment will also help support growth. “But even more important than that is broad consumer demand. It seems to be quite strong in the Philippines. So, the outlook is good,” he said.

Cochrane said he projects 6.0% gross domestic product (GDP) growth for the Philippines this year and 5.6% in 2024. A slower-than-expected recovery in China may impact the Philippines’ overall trade and tourism, according to Mr. Cochrane.

“Almost all of Southeast Asia and indeed much of the Asia-Pacific region is highly dependent on exports both to China as well as to developed markets around the world. For the Philippines, as of April, there hasn’t been any recovery yet in terms of exports,” he said.

Exports dropped by 20.2% in April, marking the fifth straight month of decline. However, exports rebounded in May as they inched up by 1.9% to $6.44 billion, the fastest growth since the 13.1% logged in November 2022.

The analyst said trade may improve as China announced on Tuesday it will be stepping up its policy support for its economy, focusing on boosting domestic demand.

“I’m expecting that second-half trade will begin looking better. That is assuming that the economy continues to grow in the developed economies and that Chinese stimulus has a good impact on domestic demand and import demand from China,” he said.

While the Philippine tourism sector has improved, Cochrane noted that visitor arrivals from China are at about 18-20% of their pre-pandemic levels. Data from the Department of Tourism showed that Chinese visitor arrivals reached 114,663 as of end-June. This accounts for 4.24% of the total number of foreign tourists.

The Philippine government’s new infrastructure projects have also added to positive investor sentiment, especially if the projects are finished on time, Cochrane said. The Philippine government hopes to spend 5.3% of GDP or around P1.29 trillion on infrastructure this year.

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