Philippines' 2022 GDP expected to grow 6.5% amid downside risks: UOB

UOB on Thursday (Jan 17) kept its 2022 full-year gross domestic product (GDP) growth forecast of 6.5 per cent for the Philippines, lower than Manila's forecast of 7-9 per cent.

The research house, which believes the country's growth outlook remains subject to downside risks, listed the risks as the pandemic, prolonged global supply chain disruptions, moderation of the global growth momentum and heightened financial volatility as a result of a tighter global monetary policy stance.

Concerns about policies and reforms of the next president and government of the Philippines have also been factored in. The country goes to the polls to elect a new president on May 9.

UOB has also noted in its report that the Philippine economy recovered at a "faster-than-expected" pace of 7.7 per cent year on year in the fourth quarter of 2021, exceeding earlier estimates of 7 per cent. Economic recovery was bolstered by all sectors and resilient household consumption, UOB said.

Economic growth in the archipelago will be supported by the expansion in global demand and higher private-sector expenditure, amid persistent policy support, sustained overseas cash-remittance inflows and improvement in the labour market, UOB added.

Meanwhile, UOB projects inflation to average 3.5 per cent this year due to the pressure on the Philippine peso (PHP) as a result of the Federal Reserve's abrupt shift in policy since December 2021.

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"A steep depreciation in PHP against the US dollar amid lingering supply chain bottlenecks would propel the nation's 2022 headline inflation higher by importing price inflation," UOB said. This would affect the Philippines because it has increased food imports over the last 2 years; it is also a net oil importing country, the research house added.

Taking into consideration its recent revised Fed rate hike projections on Thursday, UOB said it continues to believe that the Philippine central bank will likely keep its reverse repurchase rate (RRP) unchanged at 2 per cent in H1 2022.

However, the research house now expects two 25 basis point (bps) increases in the RRP rate, from just one 25 bps increase previously - one in Q3 2022, and another in Q4 2022.