Remittances likely to support GDP growth

The continued improvement of the labor sector, resilient overseas Filipino workers (OFWs) remittances, and government’s fiscal spending priorities are expected to boost the projected economic growth in the first quarter of the year, an economist said in a report by Philippine News Agency..

In a reply to questions from the Philippine News Agency Tuesday, Steve Cochrane, chief Asia Pacific economist of Moody’s Analytics, said these factors, along with the impact of the government’s increased infrastructure spending, rebuilding from the impact of typhoons in Luzon last year, and recovery of the tourism sector, are the drivers for their growth forecast of 5.9 percent gross domestic product (GDP) for the Philippines from January to March this year.

Cochrane said the domestic employment environment remains robust and “should support improving income growth.”

Philippine Statistics Authority (PSA) data showed that employment rate in the country was estimated to be at 95.3 percent in March 2023, better than the previous month’s 95.2 percent and the 94.2 percent during the same period last year.

Unemployment also went down to 4.7 percent from 4.8 percent last February and the 5.8 percent in March 2022.

Cochrane said prioritization of spending on infrastructure, education, and health services also bodes well for the economy’s expansion.

These factors are, however, can be offset by the expected weakness in global trade, he said.

“Global trade in goods will remain weak as the US and Europe struggle to maintain positive economic growth and China’s rebound from its zero-Covid policy is concentrated on domestic demand, which does not support strong import growth of goods from elsewhere in Asia,” he added.

The rise in interest rates due to government measures to address the elevated inflation rate is also expected to negatively impact domestic growth.

“High interest rates will constrain private investment in the short term, through 2023 and into 2024,” Cochrane said.

For one, the Bangko Sentral ng Pilipinas’ (BSP) key rates have been hiked by a total of 425 basis points since May 2022 to cushion the impact of the faster rate of price increases.

The domestic inflation rate has slowed for the third consecutive month to 6.6 percent last April after hitting a 14-year high of 8.7 percent last January.

Cochrane said “government fiscal priorities are good.”

“Infrastructure is critical to entice growth, encourage mobility and attract foreign investment,” he said.

Cochrane said “education is critical as the Philippines needs to raise its overall educational attainment of the population to improve labor productivity over the long term.”

“Investment in health care is a reflection that the health care system was overwhelmed by the waves of Covid. To treat Covid as an endemic virus, it must have sufficient capacity to care for those who contract the virus, or similar viruses,” he added.

The PSA is scheduled to release the first quarter GDP report on Thursday.

The GDP expanded by 7.2 percent in the last quarter of 2022, resulting in a 7.6 percent average growth last year.

The domestic economic output in 2022 exceeded the government’s 6.5 to 7.5 percent target.

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