THE Philippines’ gross domestic product (GDP) is prone to expand slower than the federal government’s goal until 2025, Citigroup, Inc. (Citi) said.
Citi cut its GDP growth forecast for the Philippines to five.8% this yr but kept its 6% growth forecast for 2025.
That is below the federal government’s 6-7% goal this yr and 6.5-7.5% goal next yr.
“We lowered 2024 GDP growth barely from 6% to five.8%, mainly on account of a weak third-quarter outturn that had been a results of several temporary, weather-related aspects,” Citi economist for Thailand and the Philippines Nalin Chutchotitham said in a report.
The Philippine economy slowed to five.2% within the July-to-September period from 6.4% within the second quarter and 6% a yr ago.
This was also the weakest growth because the 4.3% expansion within the second quarter of last yr.
“Nonetheless, we predict it will be misleading to view the weaker third-quarter expansion as the beginning of a slowdown as several negative aspects within the third quarter are one-off events,” Ms. Chutchotitham said.
She said the weakness in third-quarter economic growth mainly stemmed from the drop in agriculture production, construction activity and net exports.
Despite the weak third quarter, Citi expects growth to speed up within the fourth quarter as domestic demand is seen to select up on account of easing inflation and lower rates.
“We expect fourth-quarter 2024 GDP growth to speed up to six% yr on yr. Household consumption is predicted to proceed improving, supported by lower rates of interest and improved consumer sentiment as inflation continues to stabilize.”
Within the first nine months, GDP grew by 5.8%. The economy would want to grow by a minimum of 6.5% within the fourth quarter to satisfy the lower end of the federal government’s 6-7% goal.
“With the storm season passing soon, we also expect infrastructure projects’ progress to proceed at a faster clip within the fourth quarter and first quarter of 2025,” Ms. Chutchotitham said.
Domestic demand will even likely be sustained by improving employment conditions, remittance growth and bank lending.
“The RRR (reserve requirement ratio) cut of 250 basis points (bps), effective on Oct. 25, would also release more liquidity into the banking system and certain proceed to support strong credit expansion,” Ms. Chutchotitham added.
The central bank last month reduced the RRR for universal and business banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7%.
“We also maintain our expectation of 6% growth in 2025 but see some upside risks on account of tailwinds from more rate cuts,” Citi said.
The Bangko Sentral ng Pilipinas (BSP) will likely cut by 25 bps in December and by a complete of 75 bps next yr, in response to Citi.
This yr to date, the central bank has reduced rates of interest by 50 bps since August. The Monetary Board is ready to carry its last rate-setting meeting of the yr on Dec. 19.
BSP Governor Eli M. Remolona, Jr. has said it is feasible to deliver a 25-bp rate cut by then. This might bring the benchmark rate to five.75% by end-2024.
“Looking ahead, the recent enactment of CREATE MORE (Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy) bill should help to lower costs for businesses through lower corporate income tax, larger deductions of electricity expenses, and simpler local tax and VAT regulations,” Ms. Chutchotitham said.
Last week, President Ferdinand R. Marcos, Jr. signed into law the CREATE MORE bill.
The law expands fiscal incentives and lowers corporate income tax on certain foreign enterprises.
“In response to the post-pandemic world, the CREATE MORE law allows firms in special economic zones to implement flexible/hybrid work arrangements while continuing to enjoy their other incentives,” she added. — Luisa Maria Jacinta C. Jocson
