Nomura raises PHL GDP forecast for 2023, 2024

NOMURA HOLDINGS, Inc. has raised its Philippine gross domestic product (GDP) growth estimates for this year and 2024, though these were still below the government’s forecast.
In the report “Philippines: A shallower growth dip,” Nomura Chief ASEAN (Association of Southeast Asian Nations) economist Euben Paracuelles and analyst Rangga Cipta said the Philippine economy is now expected to grow by 5.5% this year, from 4.3% previously.
“We now forecast a more modest slowing of GDP growth to 5.5% in 2023 after a better-than-expected outturn (7.2%) in the fourth quarter last year, which brought full-year 2022 growth to 7.6%,” Nomura said.
Nomura also hiked its GDP growth projection to 6.3% for 2024 from 6%.   
Both estimates are still below the government’s 6-7% target for 2023 and the 6.5-8% goal for 2024.   
“In addition, the relatively large upward revisions to our US and China GDP growth forecasts have a material impact on our Philippine forecasts via the export channel (both goods and services),” Nomura said.   
It raised its GDP growth estimate for China to 5.3% this year from 4.8%, while it sees the US economy expanding by 0.7% from 0.1%.    
“Still, our 2023 GDP growth forecast is below the government’s target of 6-7%, on our view that domestic demand will likely be less resilient than in past global downturns because of persistently high inflation, which hurts consumption spending,” Nomura said.
Inflation as well as high food and energy prices pose downside risks to growth, while increased foreign direct investments and the quicker rollout of infrastructure projects are upside risks, Nomura said.
Inflation quickened to a 14-year high of 8.7% in January from 8.1% in December.
“We therefore raised our 2023 inflation forecast to 5.6% from 4.4%, further above the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target,” Nomura said.
The central bank sees inflation averaging 4.5% this year before easing to 2.8% in 2024.
“We maintain our forecast for BSP to hike by an additional 50 basis points (bps) to 6%, penciling in two 25-bp hikes in each of the next two meetings in February and March,” Nomura said.   
The central bank will likely start cutting its policy rate from the fourth quarter of 2023, instead of the third quarter, it added.
The Monetary Board increased the benchmark rate by 350 bps to a 14-year high of 5.5% last year.
The BSP is widely expected to raise benchmark interest rates at its meeting on Thursday. A BusinessWorld poll showed nine analysts expect it to hike borrowing costs by 50 bps, while eight analysts anticipate a 25-bp increase.
Nomura also expects a slower narrowing of the fiscal deficit to  6.6% of GDP this year from 6.8% in 2022. This is lower than the government’s 6.9% forecast.   
“While total revenues are tracking above official projections in 2022, we think they will underperform in 2023, given our nominal GDP growth forecast is lower than in the (medium-term fiscal framework). Importantly, we think expenditures will hold up, led by capital outlays under the ‘Build Back More’ infrastructure program,” it said. — Keisha B. Ta-asan