With new peaks in employment levels and the peso depreciation boosting OFW, BPO and exporters’ incomes, GDP growth should only show a mild easing in Q4. Contrary to projections of a significant slowdown in 2023, we expect the positive effects of the two above factors to contribute to a sustained fast growth of 6% in 2023. Inflation looks set to decelerate to below 5% on average, while the peso’s weakness will resurface starting late Q1-2023.
Fixed Income Outlook
Persistently high inflation and hawkish rhetoric from the Fed and BSP mainly drove up domestic bond yields in October. Kneejerk selling ensued when BSP announced it will hike point by point with the Fed amid record slump of the peso. This resulted in the upward march of the local 10-year yields which traded above 7.4% in November. A major easing of the 10-year bonds will only emerge by Q1-2023 when local inflation may go below 6% (on high base effects) and provide positive real yields. Factors which will drive the resurfacing of the peso weakness may be due to the still huge trade deficit in H1-2023 and the need to rebuild GIR. Meanwhile, U.S. Treasuries dipped below 4% in November as October inflation softened to 7.7% but this may prove transitory as the Fed reaffirmed its aggressive hiking cycle on a still tight labor market.
Investors returned to the market in the aftermath of the Fed's policy rate hike of the previous month and faster domestic inflation, thus PSEi rebounded by 6,000 in October. PH economic growth of 7.6% YoY in Q3-2022 likewise provided good support to foreign investors, which led them to renew their confidence. The PH economy's robust four-month job creation until September also supported the positive outlook to investors. Moving forward, only favorable external data and continued robust growth in corporate earnings would reverse investors' risk-aversion, resulting in a more attractive equities market; likewise, banking and infrastructure-related firms would appear attractive to the market.