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SINGAPORE, November 27, 2023 – The Philippines’ economic recovery is expected to remain robust amid high inflation and weaker external demand. Growth is forecasted to moderate to 5.6 percent in 2023 from a multi-decade high of 7.6 percent in 2022, and to pick up to 6.3 percent in 2024 as external demand recovers. Headline inflation is expected to rise from 5.8 percent in 2022 to 6.0 percent in 2023 and then moderate to 3.6 percent in 2024, within the 2–4 percent inflation target.

AMRO’s assessments are highlighted in the 2023 Annual Consultation Report on the Philippines published today by the ASEAN+3 Macroeconomic Research Office (AMRO). The report is based on AMRO’s Annual Consultation Visit to the Philippines from August 29–September 8, 2023, and data and information available up to November 9, 2023.

Economic developments and outlook

GDP growth was robust in the first three quarters of 2023. Despite weaker external demand, the growth momentum is expected to be sustained by resilient household consumption reflecting an improving labor market, lower inflation, robust overseas remittances, and higher government infrastructure spending. On the external front, a widening current account deficit was partly offset by net capital inflows and the international reserve buffer remains adequate.

Inflation remained high in 2023, driven by buoyant demand and supply shocks. The high core inflation reflects elevated inflationary pressure due to a positive output gap and the second-round effects from increases in the minimum wages and persistently high inflation expectations.

The banking sector sees improved profitability, ample liquidity, and sufficient capital buffer. The fiscal position continues to improve in 2023 due to strong revenue collection and moderate spending.

Risk and vulnerabilities

In the short term, the impact of high inflation on the economy remains the key concern. Economic slowdown in major trading partners, volatility in the global financial markets along with tighter financial conditions could also weigh down on growth outlook. Over the medium to long term, the country’s growth potential faces several challenges, including the scarring effects of the pandemic, a slower pace of infrastructure development, heightened geopolitical risks, and economic losses from extreme weather events.

Policy recommendations

Concerted efforts by the Philippine authorities in addressing high inflation is welcomed. Both monetary and fiscal policies have been tightened to dampen demand in view of the positive output gap. At the same time, the “all-of-government approach”, including the provision of targeted fuel and cash subsidies to the most vulnerable sectors, has been employed to mitigate the impact of the supply-side inflation. Monetary policy was tightened aggressively with a cumulative 450 bps policy rate hikes between May 2022 and October 2023. The 2024 budget will adopt a countercyclical stance and follow the medium-term fiscal framework to continue reducing the fiscal deficit. Meanwhile, macroprudential tools can also be used actively to address potential financial stability issues.

Fiscal policy should strike a balance between restoring fiscal buffer and supporting sustainable growth in the medium to long term. Strong commitment to fiscal consolidation should be anchored by fiscal rules and disciplines. With regard to the financial system, the authorities should continue to improve the liquidity management framework, develop the bond and repo markets, expand financial inclusion, safeguard financial stability, and enhance financial resilience and inclusion. Assessing, monitoring, and managing financial stability risks that might arise from non-financial corporates would require close coordination among regulators.

In the long term, the Philippine economic growth potential could be bolstered by a comprehensive strategy. To overcome the scarring effects of the pandemic and help the workforce embrace a more technology-driven economy, upgrading and upskilling is crucial. Meanwhile, policies and measures to attract investments, particularly foreign investments, and promote exports of both goods and services are the underpinnings of long-term economic development. Infrastructure investment, digitalization, and development of a green economy can help strengthen the country’s competitiveness.


About AMRO

The ASEAN+3 Macroeconomic Research Office (AMRO) is an international organization established to contribute toward securing macroeconomic and financial resilience and stability of the ASEAN+3 region, comprising 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support regional financial arrangements, and provide technical assistance to the members. In addition, AMRO also serves as a regional knowledge hub and provides support to ASEAN+3 financial cooperation.

About AMRO’s Annual Consultation Report

The Annual Consultation Report was prepared in fulfillment of AMRO’s mandate. AMRO is committed to monitoring, analyzing, and reporting to its members on their macroeconomic status and financial soundness. AMRO also helps identify relevant risks and vulnerabilities, and assists members, if requested, in the timely formulation of policy recommendations to mitigate such risks.