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Despite difficulties like a high inflation rate, Fitch Solutions Country Risk and Industry Research raised its prediction for the Philippines’ economic growth in 2022 as a result of the country’s first-half performance, which was higher than predicted.

According to research released on Thursday, Fitch Solutions now expects the domestic economy to grow by 6.6 percent this year, within the government’s target range of 6.5 to 7.5 percent. It had previously predicted 6.1 percent.

However, given the anticipated slowdown in the global economy, tightening global monetary conditions, and rising oil prices, it expects slower growth in the second half of the year.

The gross domestic product (GDP) for the nation decreased from 8.2 percent in the first quarter to 7.4 percent in the second, bringing the first-half average to 7.8 percent.

Domestic output decreased by -0.1% from the first to the second quarter of this year, as measured on a quarter-to-quarter, seasonally adjusted basis.

The growth slowdown is consistent with Fitch Solutions’ prediction; the report stated, “although the amount was smaller than we expected.”

In contrast to the 7.8 percent y-o-y (year-on-year) growth print in H122, “our forecast reflects our views that H222 (second half 2022) growth will decline,” it stated.

According to the report, the economy’s continuous reopening, spending associated with the May national elections, as well as the accommodating monetary policy, which boosted consumption and investment, all contributed to growth in the first half of the year.

These positive factors helped counteract external headwinds brought on by high oil costs, a recession in the global economy, and tightening monetary conditions worldwide. We do anticipate that these tailwinds will gradually disappear over the upcoming months while growth challenges exacerbate, which will result in weaker growth in H222,” it continued.

Due to predictions of a slowdown in the global economy, Fitch Solutions anticipates that the country’s exports will rise at a slower rate this year—roughly 6% as opposed to 7.8% last year and 7.4% in the first half of the year.

The data stated that exports increased by 1% in July of last year from 6.4 % the month before, which was due to a decline in electrical sales.

It said that traditionally, almost 51% of all exports from the nation had been made up of electronic equipment.

Given that the nation is a net energy importer, the analysis said that elevated energy prices will continue to have a negative impact on domestic savings and investment.

According to the report, “rising energy costs have caused (a) a significant increase in the Philippines’ import bill, worsening the trade gap.”

Additionally, the increasing inflation rate, which increased last July from 6.1 percent to 6.4 percent, is perceived as eroding the purchasing power of households.

The government’s target range of 2-4 percent was exceeded by the average inflation rate to date, which was 4.7 percent.

Since last April, when it increased to 4.9 percent, the monthly pace of price rises has been above the government’s intended range.

Energy and food costs “will continue to be a substantial source of upward pressure in the Philippines against the backdrop of the ongoing Russia-Ukraine war and unfavorable weather conditions in a number of food-producing countries in the area,” it said.

The Bangko Sentral ng Pilipinas (BSP) and other central banks are projected to further tighten key rates as a result of the expected continuation of high inflation, which will have an effect on investment and private consumption.

The Monetary Board (MB), which sets policy at BSP, has raised the key policy rates by 125 basis points so far this year.

By the end of 2022, the overnight reverse repurchase (RRP) facility rate is expected to reach 4.25 percent, according to Fitch Solutions’ prediction.

Despite these obstacles, Fitch Solutions stated that the economy’s growth this year faces downside risks in part because of an increase in coronavirus disease cases in 2019. This could lead to the government enacting mobility restrictions, which would then probably have an impact on domestic growth.

It warned that any worsening of the situation between Russia and Ukraine “may trigger significant upside volatility in energy prices, thereby dampening investment zeal and the trade position of the Philippines.”

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