Robust employment, construction, manufacturing, exports and OFW data propelled GDP to grow by 7.2% YoY in Q4, far better than market expectations of 6.8%. The year ended 7.6% higher than 2021, also far above analysts’ projections. The momentum should spill over into 2023 through the multiplier effect. Besides, infrastructure spending should provide additional impulse as DPWH budget increased by 12.1% for 2023, while mega projects like the Metro Manila subway and North-South Commuter rail will go full blast. Inflation (seasonally adjusted) shows signs of deceleration with lower highs and lower lows. The peso will renew its depreciation (more mildly) as the U.S. Fed continue to hike policy rates while the PH trade deficit remains above $50.0-B. All told, we see GDP expansion in 2023 to hover at 6%.
Fixed Income Outlook
Despite faster local inflation at 8% in November- and 8.1% in December, the 10-year yields fell sharply to 6.03% by the 4th week of January as markets priced in much slower Fed policy rate hikes in 2023. However, we see the Fed raising rates to at least 5% to 5.25% in 2023 amid tight labor market. Domestically, the BSP will likely tighten by another 50 bps in H1 on the back of still elevated inflation and robust economic growth. With this, profit-taking may ensue and put yields back higher after the next Fed meeting.
The PSEi soared by +7.4% in the first four weeks of 2023, thus providing PH equity investors a big headstart for 2023. Notably, the 6-month high and 14-month expansion record of Manufacturing PMI (+53.1, above 50-level) will likely drive up earnings per share by 15% in 2023. As global uncertainties about inflation and interest rates remain, investors should still practice selectivity. If earnings grow as we expect, PSEi should hit 7,500 in 2023. Therefore, investors can look forward to a better 2023.