In its Regional Economic Outlook quarterly update, the ASEAN+3 Macroeconomic Research Office (AMRO) kept its 6.3% gross domestic product (GDP) growth outlook for the Philippines, unchanged from the January report.

This is faster than the revised 5.5% GDP growth in 2023 and within the government’s revised 6-7% target for this year.

AMRO also sees the Philippines expanding by 6.5% in 2025, also within the government’s 6.5-7.5% goal.

“I think 6.3% is very strong growth (for this year), among the highest in the region,” AMRO Chief Economist Hoe Ee Khor said in a virtual briefing. “The Philippines will also benefit from the upswing, you know, in terms of external demand… Manufacturing sector will benefit from that and the recovery in tourism.”

For this year, AMRO’s growth projection for the Philippines is ahead of Cambodia (6.2%), Vietnam (6%), Indonesia (5.2%), Malaysia (5%), China (4.4%) Laos (4.7%), Hong Kong (3.5%), Myanmar (3.2%), Thailand (2.9%),  Brunei Darussalam (2.7%), Singapore (2.6%), South Korea (2.3%) and Japan (1.1%).

For 2025, the Philippines and Vietnam are expected to be the growth leaders in the region.

“The Philippine economic outlook is clouded by various risk factors and challenges. In the near term, growth prospects are relatively robust, but high inflation is a risk, especially as a result of local supply shocks in the food sector and the impacts of geopolitical conflicts on international energy prices. These will exert upward pressure on inflation which can dampen domestic demand,” AMRO said in the report released on Monday.

Philippine inflation will be among the fastest in ASEAN+3 this year at 3.6%, alongside Vietnam, according to AMRO estimates.  Only Myanmar (16.1%) and Laos (14.3%) will likely post faster inflation. 

For 2025, the think tank sees Philippine inflation easing to 2.9%.

AMRO’s inflation forecasts for the Philippines are lower than the Bangko Sentral ng Pilipinas’ (BSP) 3.8% and 3.2% estimates for this year and next year.

“I think there’s a slight risk that this year, because of the synchronized upswing in the global economy, that inflationary pressure may actually be on the upside rather than on the downside, so it may slow down the moderation in the growth rate,” Mr. Khor said.

He noted that upside risks to inflation could delay rate cuts by the BSP, which on Monday kept policy rates at a near 17-year high of 6.5%.

“(Inflation) has not come down low enough for the [Philippine] central bank to feel comfortable to ease the rate… Our view is that monetary policy also needs to remain fairly tight until inflation has come off and reach its (2-4%) inflation target,” he added.

AMRO said the Philippines also faces risks from an economic slowdown in major trading partners, volatilities in financial markets and tighter financial conditions.

“Looking at the longer term, the growth potential will largely hinge on the economic scarring effects of the pandemic, the pace of infrastructure development and heightened geopolitical tensions between China and the United States,” it said.

The Philippines also faces rising social and economic costs from climate disasters. AMRO said the country needs to craft a comprehensive strategy for “resilient, sustainable and inclusive long-term growth.”

‘ENGINE OF GROWTH’
The ASEAN+3 region is seen to expand by 4.5% this year and by 4.2% in 2025, according to the AMRO report.

The ASEAN region alone is projected to grow by 4.8% this year, higher than AMRO’s 4.5% projection in January. For 2025, the region is expected to grow by 4.9%.

Inflation in ASEAN+3, excluding Laos and Myanmar, is forecast to slow to 2.5% this year, and to 2.3% in 2025.

“Domestic demand is likely to remain resilient, underpinned by recovering investment and firm consumer spending,” AMRO said. “Export recovery, especially in semiconductors, and tourism should provide an additional lift to growth.”

The think tank said the ASEAN+3 region will continue to be the “engine of growth” for the world economy, as it is projected to contribute as much as 45% of global growth through 2030.

However, AMRO warned the near-term outlook for the region faces risks from a sudden spike in global commodity prices due to an escalation in geopolitical tensions or weather shocks.

“Other key risks include slower-than-expected growth in China, adverse spillovers from the US presidential election campaign and possible recession in major advanced economies outside the region,” it added.

AMRO also noted that the outlook gives ASEAN+3 economies a chance to rebuild policy space that was lost during the pandemic.

“Going forward, the priority for fiscal policy should be directed mainly at restoring buffers while providing targeted support for the economy. Meanwhile, it is essential for monetary policy to be focused on anchoring inflation expectations given the continued upside risks to inflation,” it said.