Stock market investors have reasons to be optimistic this year as better economic growth and lower inflation have been forecast for 2024.

For economic growth, the government’s economic managers see Philippine gross domestic product (GDP) increasing by to 6.5 percent to 7.5 percent in 2024. This is higher than the projected 6-percent GDP growth for 2023 by the National Economic and Development Authority.

The country’s GDP grew by 5.5 percent in the first three quarters of 2023.

“The government’s infrastructure program, opening up of sectors to greater foreign investment, and private sector participation through PPP (public-private partnership) modalities will gradually crowd in private investment and help realize a growth potential of about 6 to 6.5 percent over the medium term,” NEDA said.

Meanwhile, the International Monetary Fund (IMF) sees the country’s GDP reaching 5.3 percent this year, and increasing to 6 percent in 2024.

“Real GDP growth is expected to bounce back in the second half of 2023 and reach 6 percent in 2024, supported by an acceleration in public investment and improved external demand for the Philippines’ exports,” the IMF said in its 2023 Article IV Consultation report released in December last year.

For its part, the Asian Development Bank (ADB) said it sees the Philippine economy posting high growth rates.

In its Asian Development Outlook (ADO) December 2023 report, the ADB maintained its 2023 and 2024 economic growth forecast of 5.7 percent and 6.2 percent, respectively.

For this year, the ADB observed that the country’s economy “showed robust growth in the first nine months of 2023.”

GDP influence on stock market

To recall, the stock market in 2023 was significantly influenced by GDP growth figures.

When it was clear that GDP growth in 2022 would exceed 7 percent, the Philippine Stock Exchange index (PSEi) closed above 7,000 points 12 times from the third week of January to the first week of February last year.

When the 7.8-percent GDP growth for 2022 was announced by the government in January 26, 2023, the PSEi closed at 7,042.70.

The highest close of the PSEi in 2023 was 7,094.86 in January 18, 2023.

Also, when the lower 4.3-percent GDP growth was announced on August 10, 2023, the PSEi went below 6,200 in the same month. The PSEi also reached its lowest point of 5,961.99 points on October 27, 2023 also because of the lower GDP growth in the third quarter.

But when the government announced the higher 5.9-percent third-quarter GDP growth in November 9, 2023, the PSEi started recovering and reached 6,500 points in December.

Lower inflation seen this year

For inflation, the Bangko Sentral ng Pilipinas (BSP) has set a target of 2.0 to 4.0 percent for this year.

The inflation rate in January 2023 reached 8.7 percent, the highest since 2008.

The Monetary Board of the BSP raising policy rates three times or in March, April and October helped bring down the country’s inflation rate to 4.1 percent in November.

Whenever the Monetary Board raises policy rates, this increases the interest rates of banks and controls money supply in the country, which helps control inflation rate.

In the first 11 months of 2023, the average inflation rate was 6.19 percent while it was 5.82 percent for full-year 2022.

The lower inflation rates in October and November of 4.9 percent and 4.1 percent, respectively, also helped the PSEi stay above 6,200 points in November and reach 6,500 points in December.

Besides a lower inflation target this year, stock market investors will also be waiting for the decision of the BSP and the US Federal Reserve to lower policy rates, which will help stimulate economic growth.

However, BSP Governor Eli Remolona Jr. said the Monetary Board is likely not to reduce policy rates in the next few months.

“I think we’re unlikely to cut rates in the next few months. We’re in a higher (rate) for longer, when I say hawkish, that basically means high for a while,” Remolona said in his last press briefing of 2023.

“If most of the numbers point in the right direction, including expectations, they really settle into this comfortable range of 3 percent for inflation, then we would consider cutting rates,” he added.

The BSP and NEDA are also aware of the possible effect of the El Niño weather disturbance that will intensify in May this year.

However, the government said it is preparing for the onset of the El Niño to lessen its impact on the Philippine economy, or would not cause lower GDP or higher inflation rates this year.