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Strong domestic demand to stop the Philippines’ recession

However, an analyst stated that domestic demand is seen to bolster the local economy and soften the impact of foreign concerns. In 2023, elevated inflation and the anticipated global economic recession are expected to damage economies.

Sue Trinh, co-head of Manulife Investment Management’s global macro strategy, stated in a video briefing on Monday that investors’ worries are heightened by the ambiguity surrounding when the Federal Reserve would raise its main policy rates, and that this is thought to enhance market volatility.

Although she acknowledged that the Philippine economy is partially shielded from these events, she disregarded any possibility of a home economic recession, calling this “a very positive start.”

However, she noted that given the high inflation and the initial consequences of rather vigorous monetary tightening, domestic demand “is likely to be a little softer.”

Despite the growing headwinds, economic managers recently maintained the government’s 6.5 to 7.5 growth forecast for this year. They did this after observing strong growth in the year’s first three quarters.

GDP growth in the first quarter of the year was 8.2 percent year over year, which was higher than the 7.8 percent growth in the fourth quarter.

The following quarter saw a slowdown to 7.5 percent, while the third quarter saw an upswing with a growth of 7.6 percent.

This year’s first nine months saw growth of 7.76 percent.

This output took place as the key policy rates of the Bangko Sentral ng Pilipinas (BSP) continued to rise. These rate increases are intended to combat the quicker inflation rate, which as of last November averaged 5.6 percent, above the government’s goal range of 2-4 percent.

Since last April, the monthly rate of price increases has exceeded the government’s planned range, primarily as a result of increases in the price of oil and other commodities on the world market as a result of the Russia-Ukraine conflict.

Nearly all economies are experiencing a similar predicament, with US inflation reaching its highest level in four decades.

The result is that since last March, the Federal Reserve has increased its benchmark interest rate by a total of 425 basis points, bringing it from 4.25 to 4.5 as of December 14.

The BSP increased its key policy rates as a result of the Fed rate hikes, citing the need to maintain an adequate interest rate divergence with the US.

The global economy is expected to strengthen in the second half of next year, despite these obstacles, Trinh said. “During this period, these headwinds are likely to diminish, ushering in more favorable conditions for the financial markets.”

According to her, “our base scenario is that the impending negative demand shock would be sufficient to push growth concerns above inflation concerns, and that might open the door for the Fed to adopt a dovish pivot and possibly cut rates during the fourth quarter of 2023.”

The timing of the stagflation trough, China’s full reopening, and the top of the US dollar, she continued, pose the biggest risks to the firm’s projection.

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