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ITCH Solutions has raised its 2022 Philippine GROWTH FORECAST ON ACCOUNT OF A STRONG fiRST half and despite an anticipated second semester slowdown.

“Due to better-than-expected economic performance in H122 (the first half of 2022), we have raised our 2022 real GDP (gross domestic product) growth forecast to 6.6 percent in 2022, from 6.1 percent previously,” the financial information services provider said in a report released on Thursday.

The projection falls within the government’s 2022 target of 6.5 to 7.5 percent and is higher than 2021’s actual GDP growth of 5.7 percent.

Fitch Solutions said the outlook also reflected expectations that growth would decline in the second half in comparison to January-June’s 7.8-percent yearon-year uptick.

It noted that the reopening of businesses in February and election-related spending had contributed to first-half GDP growth and that a reasonably accommodating central bank had somewhat boosted consumption and investment.

These positive factors helped counteract external headwinds brought on by high oil costs, a slowdown in the global economy and tightening monetary conditions worldwide.

“However, we believe that these tailwinds will continue to fade over the coming months, while growth headwinds intensify, leading to slower growth in H222 (second half),” Fitch Solutions said.

It explained that firstly, the forecast for the global economy had gotten softer and would continue to do so, which means reduced foreign demand for Philippine exports. Real export growth was forecast to slow to 6 percent in 2022, down from 7.8 percent in 2021 and 7.4 percent in the first half.

Because the Philippines is a net energy importer, meanwhile, high energy prices will continue to have a negative impact on domestic savings and consequently investment. Brent oil prices are expected to average $105 per barrel compared to $70.91 in 2021, indicating higher energy costs for the rest of 2022.

Third, Fitch Solutions anticipates rising inflation to continue eroding household purchasing power and private consumption, causing the latter to rise by just 7.5 percent this year as opposed to the first-half average of 9.3 percent.

“Against the backdrop of the ongoing Russia-Ukraine war and adverse weather conditions in a number of food-producing countries in the region, energy and food prices will continue to be a significant source of upward price pressure in the Philippines,” it said.

The Bangko Sentral ng Pilipinas and central banks in developed countries are expected to continue tightening monetary policy, which will have an impact on investment and — to a lesser extent — private consumption.

In light of this, gross fixed investment was forecast to pick up by 15 percent in 2022 as opposed to the first-half average of 20.4 percent.

Risks to the 2022 Philippine growth forecast, Fitch Solutions said, “are weighted to the downside.”

It warned that an increase in Covid-19 cases would lead to further limitations being put in place by the government, which would halt the current economic recovery.

Second, an escalation in the conflict between Russia and Ukraine could result in increased upside volatility in energy prices, which would further dampen investor interest and the Philippines’ trade position.