DBS estimates PHL Q1 GDP growth at 6%, low end of range

THE economy is estimated to have expanded 6% in the first quarter, DBS Bank Ltd. said, joining the consensus towards the low end of the forecast range, with the bank citing slowing private consumption and easing investment.

Cooling inflation may also prompt the Bangko Sentral ng Pilipinas (BSP) to keep policy rates on hold at its May 18 meeting, the bank said.  

In a research note issued May 8, DBS Bank Chief Economist Taimur Baig and Foreign Exchange & Credit Strategist Chang Wei Liang said Philippine gross domestic product (GDP) growth likely slowed in the first quarter relative to recent periods.

“The Philippines will release its first quarter 2023 GDP figures this week, and we expect real GDP growth to step down to 6% year on year from above 7% over the past three quarters,” the bank said.

Growth in private consumption likely moderated due to elevated inflation and high interest rates, which dampened spending power.

Private consumption growth accounts for about 70% of GDP. Domestic consumption growth rose 7% in the fourth quarter, bringing 2022 household consumption growth to 8.3%.

At 6%, the bank’s projection is at the low end of the government’s 6-7% target this year, and more than a percentage point behind the pace from the fourth quarter, when growth was 7.1%.

The median estimate from a BusinessWorld poll of 23 economists conducted last week was 6.1%.

The Philippine Statistics Agency is scheduled to report the first quarter GDP growth data on May 11.

“Business investment likely eased too as corporate margins were hurt by higher costs. The tough global external environment also meant that net trade is not likely to have boosted headline growth,” the bank said.  

Gross capital formation, the investment component of the economy, grew 5.9% in the fourth quarter of 2022. Full-year growth was 16.8%, slowing from 20.3% in 2021. 

The BSP has raised borrowing costs by 425 basis points (bps) since May last year to curb inflation. This brought the key policy rate to a near 16-year high of 6.25%.

The aggressive monetary tightening appears to have had an impact, as headline inflation eased to 6.6% in April, from 7.6% in March. It was the lowest inflation rate in eight months or since the 6.3% posted in August.     

In the first four months of 2023, inflation averaged 7.9%. This remains above the central bank’s 6% forecast for 2023 and its 2-4% target.    

According to DBS Bank, the BSP’s policy stance has recently shifted.

“We now expect the BSP to pause at its May meeting, given the shift in tone and the faster-than-expected softening (of) inflation since February 2023,” it said.

BSP Governor Felipe M. Medalla has said that if inflation slowed further in April, the Monetary Board may consider pausing its tightening cycle this month.

“The BSP is likely to judge that the policy rate is tight enough to tackle inflation after 425 bps in cumulative hikes since May 2022 to 6.25%, but any pause would be hawkish,” the bank said.

However, future policy decisions should still be based on incoming economic data especially as headline inflation, although slowing down, remains above the 2-4% central bank target range.

“Commodity prices have fallen vs 2022, and second round effects should be kept at bay. Monetary policy works with a lag and would continue to restrain prices, and push headline inflation to target by the fourth quarter of 2023,” it added.

The BSP sees Philippine inflation averaging 6% this year, before cooling to 2.9% in 2024. — Keisha B. Ta-asan