FREE Commentary: Better for GDP growth to slow down

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Inflation cooldown in progress

The latest data from the Philippine Statistics Authority showed that headline inflation in the Philippines eased further to 3.9% in December from 4.1% the previous month, and slightly lower than the 4.0% expected by most economists. Core inflation, which excludes volatile food and fuel prices, likewise eased to 4.4% from 4.7% in November.

The latest inflation print brought the 2023 annual average to 6.0%, which is still significantly higher than the BSP’s 2-4% target range. However, recent data points suggest that the disinflationary trend seems to be firmly in place, mainly due to the dampening effect of high interest rates on demand, as well as easing supply chain pressures and lower food and fuel prices on the global market.

For once, we need growth to slow

With the inflation data out of the way, the next data point to look at would be the 4th quarter (Q4) 2023 GDP, which is scheduled for release at the end of January. The consensus estimate of economists covered by Bloomberg calls for a quarterly YoY growth of 5.0%. If this forecast materializes, this would be the slowest Q4 GDP growth since 2011, excluding the negative growth at the height of COVID-19 lockdowns in 2020.

For once, we need this to happen and it would actually be even better if GDP growth comes in lower than expected. We are betting that this combination of a convincing disinflationary trend coupled with slowing growth would act as the catalyst for the BSP to dial down their hawkish rhetoric and eventually start cutting rates, which in turn could be the catalyst to turn our market around from its four-year losing streak.

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