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The Philippines’ economy is expected to grow more than expected in 2022, according to the Asean+3 Macroeconomic Research Office (AMRO), which cut its projection for the Asean+3 due to the crisis in Russia and Ukraine and the tighter global financial environment.

As measured by gross domestic product (GDP), it now expects the domestic economy to grow by 6.9 percent this year, up from its previous April forecast of 6.5 percent. However, the 2023 estimate remained at 6.5 percent.

Hoe Ee Khor, the chief economist at AMRO, stated in a video briefing on Tuesday that “the impetus for this development is fundamentally the openness of the economy.”

He claimed that domestic investment and consumption, like infrastructure development or programs like “Build, Build, Build,” will also be major drivers of growth.

The ongoing vaccination campaign, according to Khor, is one reason why the domestic economy is anticipated “to do rather well in terms of growth” this year despite the coronavirus disease 2019 (Covid-19) infections.

According to him, AMRO anticipates the BPO industry to “continue to do well and to expand as well” because the Philippines “is mainly a service economy and the business process outsourcing sector is doing extremely well.”

The Philippines is “less influenced by overseas demand even with the slump in the US,” according to Khor because it has a service-oriented economy and has reopened as a result of the decline in Covid-19 infections.

The spillover to the Philippine economy, he predicted, “would not be as high as it is for other economies.”

The 2023 prediction was increased to 4.9 percent from 4.6 percent, and AMRO expects the Asean+3 GDP to be around 4.3 percent this year from 4.7 percent earlier.

Khor said the Bangko Sentral ng Pilipinas (BSP) has the flexibility to “really increase” its key rates as long as economic growth is anticipated to continue its recovery and remain robust. He was speaking about inflation and its effect on the BSP’s (the country’s central bank) monetary policy stance.

We are concerned about inflation, but because there has been a supply shock, the conventional wisdom has been to attempt to maintain the economy while navigating the shock.

He predicts that the BSP would increase its benchmark interest rates “to a neutral level, which is probably around 4%.”

“But monetary policy circumstances are still accommodating, despite the fact that rates are rising. Therefore, it won’t hinder expansion because it is essentially self-sustaining, he said.

“It’s wise for the central bank to start raising rates now to provide the economy more breathing room in case of another shock,” he continued.

The Monetary Board (MB), which sets policy for BSP, raised the benchmark interest rates of the central bank in May and June of last year by a combined 25 basis points and 50 basis points.

The overnight reverse repurchase (RRP) rate for the BSP was reduced by 200 basis points in 2020 as part of the central bank’s pandemic-related actions, and it is currently at 2.5 percent, down from a record-low 2 percent.

The MB increased the key interest rates of the central bank as inflation accelerated after exceeding the government’s target range of 2-4 percent last April when it hit 4.9 percent.

It subsequently increased to 5.4 percent in May of last year and then to 6.1 percent in June, the highest level since October 2018, mostly as a result of the transportation index’s and the food and non-alcoholic beverage indices’ ongoing stronger growth rates.

Inflation was on average 4.4 percent in the first half of this year.

Inflation in the Philippines is expected to be on average 4.4 percent in 2022 and 3.8 percent in 2023, according to AMRO.

These were predicted to be at 4.1 percent and 3.5 percent in April.

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