MANILA: Finance Secretary Ralph Recto says it is possible that the Philippine economy will grow below 6% in the first quarter of 2024 due to unfavourable base effects and stubbornly high inflation that may have crimped consumption.
Speaking to reporters earlier, Recto pegged the January to March economic growth at between 5.8% and 6.3 %.
If the figure that will come out on May 9 matches the upper-limit of the band, gross domestic product (GDP) growth would beat the Marcos administration’s tempered target of 6% to 7%.
But Recto explained that the forecast range had to start at 5.8% to be “more realistic” as consumer spending, a traditional growth driver, continues to feel the sting of inflation. At the same time, the finance chief expects the GDP reading to be distorted by unfavorable base effects from last year, when first quarter economic growth was at a high of 6.4%.
Nevertheless, the forecast range from Recto assumes that GDP growth in the first three months of the year would be faster than the 5.5% expansion recorded in the final quarter of 2023.
“Inflation is still the biggest worry. If we can reduce inflation, GDP growth will be higher. So we’re looking at that,” he said.
“We expect that there will be a breach of the inflation target. That’s always been expected, maybe in the second or third quarter according to Bangko Sentral ng Pilipinas (BSP). But within the year we expect that it will still be within the target range of 2% to 4%,” he added.
Some analysts said chasing 6% growth would be difficult for the Philippines as long as interest rates remain high.
So far, the BSP has kept its key rate unchanged at 6.5%, the highest in almost 17 years. Governor Eli Remolona Jr now expects borrowing costs to remain higher for a longer period as stubbornly high inflation prevents the central bank from cutting rates sooner.
A high interest rate environment can hurt consumption, which has already been battered by fast-rising consumer prices. This prompted the Marcos administration to cut its GDP growth target this year to the current 6% to 7 %, from 6.5 to 7.5 % previously.
Recto, who took the finance portfolio last January, said that while there’s nothing he can do with the first quarter GDP performance, he would work to achieve a within-target growth for the rest of the year.
“Our target is more or less 6%. Anything higher than 5.5% is a win because last year we grew by 5.5%,” he said. — The Philippine Daily Inquirer/ANN
