By Luisa Maria Jacinta C. Jocson and Aubrey Rose A. Inosante, Reporters
THE weaker-than-expected economic growth within the third quarter will allow the Bangko Sentral ng Pilipinas (BSP) to proceed cutting rates, analysts said, though this outlook is clouded by the Federal Reserve’s own moves under a Trump presidency.
“I feel the result actually implies that the BSP’s monetary policy easing cycle will proceed for the foreseeable future, with one other 25-basis-point (bp) cut not less than within the December meeting,” Pantheon Chief Emerging Asia Economist Miguel Chanco said in an e-mail.
The Philippine economy grew by 5.2% within the July-to-September period, sharply slowing from the 6.4% growth within the second quarter and 6% a 12 months earlier.
This was also the weakest gross domestic product (GDP) growth in five quarters or because the 4.3% expansion within the second quarter of 2023.
Patrick M. Ella, economist at Sun Life Investment Management and Trust Corp., said the newest GDP print “helps cement the BSP to proceed its rate cut cycle and even speed up it next 12 months if topline GDP stays slowing.”
Since August, the central bank has up to now reduced the goal reverse repurchase (RRP) rate by a complete of fifty bps, bringing the benchmark to six%.
Its final policy review this 12 months is about for Dec. 19, with markets widely anticipating one other 25-bp cut as signaled by BSP Governor Eli M. Remolona, Jr.
Finance Secretary Ralph G. Recto said they might need to cut rates further but are “mindful” of inflation expectations and the US Federal Reserve’s actions.
“There’s thought the Fed will constantly reduce rates of interest, so in the event that they do, then there’s a possibility we could also, but we’re also the exchange rate,” he told BusinessWorld on the sidelines of a budget hearing last week.
Nevertheless, Mr. Recto said the central bank is unlikely to deliver bigger-sized rate cuts. He said the Monetary Board may keep quarter-point increments, much like the BSP chief’s own signals.
Mr. Remolona earlier said they might only consider 50 bps or higher price of rate cuts in a “hard-landing scenario.”
“For the time being, we aren’t within the ‘hard-landing’ scenario (for the US and Philippine economies respectively),” Mr. Ella said.
“I feel the advance in consumption within the third quarter versus the first and second quarters is a great sign, we just need a couple of more quarters of those. Going forward, inflation and rates of interest are coming down, so we will expect improvement in consumption down the road,” he added.
TRUMP’S IMPACT ON FED
Analysts also noted the impact of the US president-elect Donald J. Trump on the US central bank’s actions and ultimately, the BSP.
“We previously thought that a weak third-quarter GDP print would open the door for larger 50-bp rate cuts in December,” Mr. Chanco said.
“But Donald Trump’s victory has complicated that scenario, as our house view is now that the Fed will keep the pace of easing to 25 bps in view of the inflationary risks within the US posed by the President-elect’s tariff proposals.”
Mr. Trump is about to return as president on Jan. 20 after beating current Vice-President Kamala Harris within the presidential elections last week.
The Fed will likely “ease more progressively” next 12 months, Mr. Chanco said, which can “constrain the BSP’s options by way of going for more aggressive cuts.”
Mr. Remolona earlier said it was possible to deliver a complete of 100 bps price of rate cuts in 2025.
The Federal Reserve cut rates of interest by 1 / 4 of a percentage point on Thursday.
Nomura Global Markets Research said in a report that the Trump win may dampen overall economic growth amid expectations of upper tariffs, weaker global demand and policy uncertainty.
“We maintain our forecast for GDP growth to enhance only marginally to five.6% 12 months on 12 months in 2024 from 5.5% last 12 months, before picking as much as 6.1% in 2025, although we now see some downside risks from Trump’s win within the US election,” it said in a report.
“We still think BSP is unlikely to be more aggressive with 50-bp clips, partially since the substantial reserve requirement ratio (RRR) cut is already providing additional easing,” it added.
Nomura expects the Philippine central bank to chop by a complete of 100 bps next 12 months.
Then again, Mr. Ella said that the Trump win is unlikely to significantly impact monetary policy.
“On the Trump win, I don’t think there are risks to interrupt the BSP easing cycle. One, the BSP will respond more to commodity or food price risks,” he said.
“Second, do not forget that Trump favors low rates. At one point in his first term, he wanted the Fed to chop rates to negative territory however the Fed resisted this call and just kept rates on a mildly rate hike path.”
SLOWING GROWTH
Meanwhile, the Philippine economy is unlikely to grow by 6.5% within the fourth quarter to satisfy the low end of the federal government’s 6-7% growth goal this 12 months, analysts said.
“Growth momentum slowing down. Hopefully, the fourth quarter of 2024 should see a positive support for consumption but [I] am a full growth of 5.8%,” Jonathan L. Ravelas, senior adviser at skilled service firm Reyes Tacandong & Co., said in an e-mailed statement over the weekend.
For the first nine months of the 12 months, GDP growth averaged 5.8%.
Mr. Ravelas said that the federal government should ramp up spending and support more non-monetary measures to deal with inflation, noting this has slowed the recovery in consumer spending.
He said one other 25-bp cut by the BSP should help support growth.
Nevertheless, fourth-quarter agriculture output can also be expected to say no as a consequence of opposed weather conditions, he said.
Agriculture, forestry and fishing shrank by 2.8% within the third quarter, a reversal of the 0.9% growth posted a 12 months ago. The sector, which accounts for around a tenth of Philippine economic output, was battered by typhoons and storms within the third quarter.
Mr. Ravelas projected GDP to grow by 6.5% in 2025, driven by the federal government’s infrastructure push, rate cuts price 100 bps by the BSP, and a recovery in consumption.
Meanwhile, Jesus Felipe, distinguished professor and research fellow on the De La Salle University (DLSU) School of Economics, said it’s also “not possible” that the fourth-quarter growth will reach 6.5%. He sees 6.2% GDP growth for the October-to-December period.
“We forecast growth in 2024 to be 5.9%,” Mr. Felipe told BusinessWorld in an e-mail statement. “The one way growth in Q4 can be higher than 6.2% (and hence annual growth higher than 5.9%) is that if the federal government incurs massive spending.”
The economy has recovered from the pandemic, but real wages are still catching up and attending to 2019 levels, he said.
“For this reason private consumption has been subdued,” Mr. Felipe added.
Meanwhile, Pantheon Macroeconomics Mr. Chanco said the newest GDP print was a “painful reality check for the Philippine economic recovery.”
“We’re sticking to our 5.4% full-year growth forecast for 2024 — implying an additional drop in Q4 to 4.4% — though the Q3 print was above our below-consensus 4.8% projection,” he said in a report.
Mr. Chanco said he expects “BSP to proceed easing policy for the foreseeable future, given the present setting stays very tight in real terms.”
“But we have now pared back our expectations on the aggressiveness of this easing cycle, because the Fed isn’t any longer prone to be as gung-ho in view of the inflationary impact of President-elect Donald Trump’s proposed tariffs,” he added.
He now sees a 25-bp cut by the BSP, from his earlier forecast of fifty bps. For next 12 months, he sees 100 bps price of easing, down from 150 bps previously forecast.
Jojo Gonzales, research analyst at Philippine Equity Partners, Inc. said the third-quarter GDP growth was worse than expected but maintained the full-year estimate at 5.9%.
“We see private consumption growth improving further in fourth quarter alongside receding inflation, reduced unemployment, improved consumer confidence, and a hike in minimum wages that took effect in 3Q24,” Mr. Gonzales added.
Meanwhile, Mr. Gonzales said government expenditures “remaining subdued” as spending appeared to have been “front-loaded” in the primary half of 2024, and should be flat within the fourth quarter.
Peter Lee U, dean of the University of Asia and the Pacific’s School of Economics, said GDP is unlikely to grow by 6.5% within the fourth quarter to satisfy the low end of the 6-7% goal.
“Based purely on past trend when fourth growth rates were 7.9% in 2021, 7.1% in 2022, 5.5% in 2023,” he told BusinessWorld in a Viber Message.
