The Philippines’s economy grew faster than expected in the first quarter, boosting expectations of interest rate hikes to curb rising inflation, a key challenge facing the country’s newly-elected president.
The Southeast Asian country’s gross domestic product (GDP) grew 8.3 percent during the January-March period compared with a year earlier, well ahead of forecasts and faster than the 7.7 percent expansion in the previous quarter.
The expansion marked the fastest increase since the June quarter of 2021, when growth reached 12.1 percent.
Bangko Sentral ng Pilipinas (BSP), the country’s central bank, holds its next policy meeting on May 19 amid growing expectations of an interest rate hike to tame rising prices that could threaten the economic recovery if left unchecked.
“This robust economic recovery coupled with above-target inflation points to policy normalisation from Bangko Sentral ng Pilipinas,” Nicholas Mapa, senior economist for the Philippines at ING, said in a note.
“Philippines BSP Governor Diokno has been keeping rates unchanged to help support the economic recovery. But with GDP now back to pre-Covid levels and with inflation accelerating, we fully expect BSP to hike policy rates at the 19 May meeting next week.”
Ferdinand Marcos Jr, the son of late dictator Ferdinand Marcos, is set to take office in June after the end of Rodrigo Duterte’s single 6-year term, following a landslide election victory on Wednesday.
Marcos, a polarising political figure due to his father’s 20-year repressive rule, has been widely seen by investors as lacking a clear economic agenda.
“President-elect Ferdinand Marcos Jr faces a tricky balancing act between supporting the economic recovery and containing the Philippines’ burgeoning fiscal deficit,” Oxford Economics economists Makoto Tsuchiya and Sian Fenner said in a note on Wednesday.
“Based on the latest budget, we expect it to average 8 percent of GDP this year, only a modest narrowing from 8.5 percent in 2021 amid some improvement in revenues on the back of stronger domestic demand. However, Marcos Jr’s fiscal agenda in unclear. He may lean toward further fiscal expansion, which could lead to credit ratings downgrades and increased risk aversion for Philippine’s assets.”
Mapa, the ING economist, said Marcos’s strong mandate could open the door to “substantial economic reforms”.
“The investor community now awaits Marcos’s cabinet picks, in particular, the composition of his economic team and his plans on how to address key issues such as accelerating inflation and debt consolidation – Marcos inherits a sizable amount of debt from his predecessor,” he said.