THE PHILIPPINES’ gross domestic product (GDP) growth will likely settle below the 6-7% goal range this yr, analysts said.
“The economy is in need of further support. Looking forward, fiscal tightening and weak export demand should keep growth subdued,” Capital Economics said in a report.
Capital Economics expects GDP growth to average 5.1% this yr, well below the federal government’s 6-7% goal.
For its part, Nomura Global Markets Research said it forecasts GDP growth to average 5.6% this yr.
“We maintain our forecast for GDP growth to enhance only marginally to five.6% yr on yr in 2024 from 5.5% last yr, before picking as much as 6.1% in 2025,” it said in a report by Nomura research analysts Euben Paracuelles and Nabila Amani.
The Philippine economy grew by 6% within the first half. To be able to meet the lower end of the goal, GDP expansion should average 6% for the rest of the yr.
Third-quarter economic data shall be released on Nov. 7.
Nomura noted that second-quarter growth was “disappointing and showed weakening growth momentum, led by one other sequential contraction in private consumption.”
Within the second quarter, GDP expanded by 6.3%, faster than 5.8% 1 / 4 earlier and 4.3% a yr ago. Nonetheless, household final consumption rose by 4.6%, slowing from 5.5% within the previous yr.
“Public investment spending stays the most important engine, as the federal government makes progress on infrastructure projects. The midterm elections in May 2025 may even likely provide an extra impetus into next yr,” Nomura said.
Meanwhile, inflation is seen to stay well throughout the Bangko Sentral ng Pilipinas’ (BSP) 2-4% goal band this yr.
“Inflationary pressures are weak… our forecast is that a mix of weak economic growth and falling food price inflation will keep inflation low,” Capital Economics said.
Nomura expects headline inflation to average 3.1% this yr, below the central bank’s 3.4% full-year forecast.
“Our forecast assumes headline inflation stays low at around 1.9% within the fourth quarter, partly reflecting the impact of the rice import tariff cuts,” it added.
Headline inflation sharply eased to an over four-year low of 1.9% in September from 3.3% in August. Within the first nine months, inflation averaged 3.4%.
“After BSP’s 25-bp (basis point) cut to six.25% in mid-August, the further decline in inflation reinforces our view that BSP will proceed to chop rates,” it added.
The Monetary Board is predicted to chop policy rates by 25 bps this week (Oct. 16).
“We expect one other 25-bp cut in its scheduled meeting (on) Wednesday,” Capital Economics said.
“We reiterate our forecast for BSP to chop by 25 bps at each of the last two meetings of the yr (i.e., in October and December),” Nomura said.
That is consistent with a BusinessWorld poll conducted last week, which showed that 16 out of 19 analysts expect the BSP to scale back the goal reverse repurchase (RRP) rate by 25 bps.
If realized, this is able to bring the goal RRP rate to six% from the present 6.25%.
“Looking beyond Wednesday’s meeting, we expect further cuts over the rest of this yr and in 2025. Our forecast that rates will finish next yr at 4.75% makes us more dovish than the consensus,” Capital Economics said.
MORE CUTS IN 2025
Meanwhile, Nomura expects the Monetary Board to chop by 25 bps at each of its first three meetings next yr before pausing.
“This is able to bring the RRP rate to five% by May 2025 (i.e., a complete of 150 bps in cuts on this cycle). The continued Fed cutting cycle also supports easing by BSP, but we still think BSP is unlikely to be more aggressive with 50-bp clips,” it said.
“The substantial RRR (reserve requirement ratio) cut is already providing additional easing and Governor Remolona said he prefers 25-bp cuts to the policy rate,” it added.
The BSP will reduce the RRR for universal and business banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5%, effective on Oct. 25.
BSP Governor Eli M. Remolona, Jr. earlier said they wish to bring the reserve requirement to as little as 0% by the tip of his term.
Meanwhile, Nomura said the federal government may even struggle to satisfy its fiscal targets.
“We proceed to forecast a fiscal deficit of 5.9% of GDP in 2024, above the revised medium-term fiscal framework (MTFF) goal of 5.6%.”
“We predict these MTFF targets shall be difficult to satisfy as a consequence of spending priorities, corresponding to the flagship infrastructure projects,” it added.
In the primary eight months of the yr, the budget deficit narrowed by 4.86% to P697 billion.
This yr’s budget deficit ceiling is ready at 5.6% of GDP. The federal government goals to scale back the deficit-to-GDP ratio to three.7% by 2028.
“Expenditure disbursements are inclined to speed up towards yearend and revenue growth likely slows, consistent with more modest GDP growth,” Nomura said.
“The passage of the bill implementing a VAT (value-added tax) on imported digital services is encouraging but could have a small revenue impact of 0.1% of GDP next yr. We predict political risks could rise within the run-up to the midterms and prove a distraction to enacting larger fiscal reform measures.” — Luisa Maria Jacinta C. Jocson
