THE PHILIPPINE ECONOMY is predicted to develop at a slower tempo this 12 months, reflecting the excessive unemployment, rising curiosity charges, and elevated inflation.
In a report, McKinsey & Co. Philippines stated gross home product (GDP) might increase by round 5.3% this 12 months, though this can be a “moving target.”
This 5.3% GDP forecast is effectively beneath the federal government’s 6-7% goal for this 12 months. In 2022, the financial system expanded by 7.6%.
First-quarter GDP information will probably be launched on May 11.
“Key challenges face the country: significantly high unemployment numbers; a high inflation rate; rising policy rates; import and export bottlenecks; and the declining strength of the Philippine peso against the American dollar,” McKinsey stated in its “What does 2023 hold for the Philippines’ economy?” report.
The report was authored by McKinsey & Co. managing companion Jon Canto, companion Kristine Romano, and data analysts Danice Parel and Vicah Villanueva.
McKinsey stated inflation is predicted to common 5.1% this 12 months, beneath the Bangko Sentral ng Pilipinas’ (BSP) common forecast of 6% however quicker than the 2-4% goal vary.
It stated the monetary companies sector will probably be affected by rate of interest hikes and rising inflation.
“Interest rate hikes could have a positive effect by widening the net-interest margin, but macrovolatility could cause a slowdown in new loans. Rising inflation will likely increase the pressure on wages and increase operational cost,” it stated.
The BSP on Thursday raised its key rate of interest by 25 foundation factors (bps), bringing the benchmark fee to a 16-year excessive of 6.25%.
High rates of interest can even damage the true property and development sector, affecting its post-pandemic restoration.
“Policy rates may reach 6.25% in the first half of 2023, which would negatively impact home lending rates and increase the strain on a sector that must also address the increased costs of construction and logistics caused by supply-chain issues,” McKinsey stated.
On the opposite hand, McKinsey stated there are alternatives for actual property investments and inexperienced buildings.
“Much of the sector is expected to recover to pre-pandemic levels by the end of 2023, and construction by the end of 2024. Much of this growth will likely be driven by residential building construction, predicted to grow by 12%. Non-residential construction, by contrast, has yet to recover to pre-pandemic levels,” it added.
Meanwhile, McKinsey stated it expects the journey and hospitality sector to return to pre-pandemic ranges by 2024.
“High inflation, for example, has increased airlines’ operating expenses. The weakening peso, by contrast, could have a positive effect by encouraging locals to travel and spend within the country rather than abroad. In fact, local air travel is already on the rise and is expected to reach pre-COVID-19 levels in the second half of 2023,” it added.
The vitality sector can be anticipated to increase this 12 months, McKinsey stated.
“Growth in the Philippines’ energy sector contracted to 4.8% in 2022 and is expected to rebound to 5.5% in 2023. However, the sector needs to ensure that this growth target can be met given looming supply constraints and while accelerating the transition to green energy,” it added.
The vitality sector nonetheless faces dangers corresponding to a possible provide scarcity within the subsequent few years, rising oil and gasoline costs, supply-chain disruptions, and foreign money depreciation.
Also, the healthcare sector might decelerate this 12 months regardless of rising demand.
“Growth stalled in 2022 (3.9% and 8.25% for healthcare services and pharmaceuticals respectively), and this trend is expected to continue in 2023,” McKinsey stated.
McKinsey famous inflation will drive up prices for service suppliers and producers, whereas provide chain issues will trigger manufacturing and drugs costs to rise.
“Turnover levels for health workers are expected to remain high, straining the capacity of service providers and potentially resulting in a poor quality of healthcare,” it added. — Luisa Maria Jacinta C. Jocson
