Inflation forecasts cut for next 2 years

Private sector economists expect the prices of basic goods and services to grow at a slower pace this year before easing further in 2025 and 2026, according to the Bangko Sentral ng Pilipinas (BSP).

Based on the results of the BSP’s Survey of External Forecasters made from Aug. 8 to 13, analysts pegged their inflation forecasts at an average 3.5 percent this year, down from 3.7 percent in May.

The August 2024 survey round on private economists’ inflation expectations also showed a lower mean forecast of 3.1 percent from 3.5 percent for 2025 and 3.2 percent from 3.4 percent for 2026.

“Analysts’ forecasts continued to move closer to the midpoint of the target range. Risks to the inflation outlook are broadly balanced, with local inflation expected to trend lower for the rest of the year,” the BSP said in its latest Monetary Policy Report.

Inflation accelerated to six percent last year from 5.8 percent in 2022, which prompted the BSP to continue its tightening cycle until October 2023. The central bank hiked rates by a total of 450 basis points starting May 2022.

Headline inflation has since eased, averaging 3.6 percent from January to August, paving the way for the Monetary Board’s first rate cut in nearly four years.

During its meeting last month, the BSP cut the key interest rate by 25 basis points to 6.25 percent from an over 17-year high of 6.5 percent previously. Prior to the cut, the BSP kept its policy unchanged for six consecutive meetings since November 2023.

According to the BSP, downside risks to the inflation outlook are expected to stem largely from lower rice prices following the implementation of Executive Order 62, which lowered the tariff for imported rice to 15 percent from 35 percent.

Analysts also anticipate downward inflationary pressures from a stronger peso against the US dollar as well as favorable base effects.

“Meanwhile, the main upside risk is expected to arise from second-round effects, such as higher electricity costs brought about by a potential uptick in oil prices amid geopolitical conflicts,” the BSP said.

The survey also showed that most analysts expect the BSP to lower the key interest rate by 25 basis points in the third quarter and another 25 basis points in the fourth quarter.

The BSP is seen to cut the key rate by a cumulative 50 to 250 basis points next year, with additional cuts of up to 100 basis points by the end of 2026.

Source: Philstar

PH to miss 2024, 2025 growth goals - Metrobank

Restrictive monetary policy continues to limit investment momentum and the Philippines will again likely miss its growth targets, the research unit of Metropolitan Bank & Trust Co. (Metrobank) said.

"We continue to believe that the country's economic growth should remain robust, albeit at a moderated pace," Metrobank Research said in a commentary.

High interest rates are making it more difficult for businesses to invest and expand, it noted, adding that Filipinos are not spending as much as before and that some households have also incurred more debt.

"Despite these challenges, the economy continues to move forward, just at a more measured pace than initially hoped," it said.

Metrobank Research trimmed its 2024 and 2025 growth forecasts for the country to 5.7 percent and 6.0 percent, respectively, from 6.0 percent and 6.0-7.0 percent.

Both fall short of the 6.0- to 7.0-percent target for this year and the 6.5-7.5 percent for 2025 — goals that economic managers had lowered in March, from 6.5-7.5 percent and 6.5-8.9 percent in December, and affirmed last month.

"Additional efforts will be needed to reach the government's target," Metrobank Research said.

Growth was a below-target 5.5 percent in 2023 — the target was 6.0-7.0 percent — and government underspending was said to be a major factor. The expansion picked up to 5.7 percent in the first quarter of 2024, also below target and lower than the 6.4 percent posted a year earlier.

Preliminary second-quarter data will be released Thursday next week. Economic managers have expressed optimism about an improvement and further gains that will allow for at least 6.0 percent growth for 2024.

Metrobank Research also revised its inflation forecasts and said the rate was likely to settle at 3.3 percent this year and further decline to 3.1 percent in 2025 from the previous forecasts of 3.3-3.6 percent and 3.3-3.7 percent.

Lower rice prices "should help keep overall prices more stable," it said, adding that "we agree with the Bangko Sentral ng Pilipinas (BSP) that inflation will stay within acceptable levels this year and next."

It warned of looming challenges, such as a strong La Niña weather event that could affect crop output and prices. Additionally, geopolitical events could disrupt supply chains and drive prices up.

"While the future looks promising for stable prices, our outlook may change," Metrobank Research said.

It believes the BSP might lower rates twice this year, with a possible third cut in December if "prices remain stable and financial markets remain calm."

The central bank's benchmark rate currently stands at 6.5 percent, the highest since 2007, after 450 basis points of rate hikes beginning May 2022 as inflation started surging.

BSP Governor Eli Remolona Jr. has signaled that an easing could start as early as August, ahead of the US Federal Reserve that is expected to start doing so in September.

Metrobank Research said the BSP could cut by a total of 75 basis points this year and by another 75 bps next year.

"However, these decisions are also dependent on what the United States Federal Reserve does with its own interest rates," it added.

"The BSP will keep a close eye on how quickly the US lowers its rates, as this can affect the Philippine economy and the value of the peso."

News of an early easing has weighed on the peso, which has been trading at the P58:$1 level for over two months.

Metrobank Research said that a wider current account deficit, where the Philippines imports more than it exports, could establish a new baseline for the currency's value.

"As a result, the peso might not strengthen significantly against the dollar but settle at an exchange rate of about P57.20 per dollar by year-end," it said.

Source: Manila Times

PHL consumer demand seen to remain muted

Domestic demand in the Philippines and other emerging Asian economies is expected to remain muted amid a high interest rate environment, S&P Global Ratings said.

“Consumer demand is more subdued in the Philippines with elevated interest rates (with the policy rate at 6.5%) and weak consumer confidence,” S&P said in its Emerging Markets (EM) Monthly Highlights.

The Bangko Sentral ng Pilipinas (BSP) kept its key rate to an over 17-year high of 6.5% since October 2023 to tame inflation.

“Opposing forces are at work as consumer demand remains broadly stable in EM Asia. On the one hand, demand is dampened by tighter monetary policy and spillovers from weaker economic growth last year,” it said.

“On the other hand, resilient labor markets and recovering tourism are supporting consumption activity.”

In the first quarter, the Philippine gross domestic product (GDP) grew by a weaker-than-expected 5.7%.

Household spending, which accounts for about three-fourths of growth, grew by 4.6%. This was its slowest pace since the 4.8% decline in the first quarter of 2021.

“We observe a slowdown in long-term GDP growth across some EMs, mostly because of slower labor productivity and fixed investment,” S&P Global said.

“In an environment of high interest rates, EM Asian economies with higher domestic savings may be better positioned to finance investments and boost long-term growth prospects,” it said.

The Philippines is targeting 6-7% economic growth this year, 6.5-7.5% for 2025 and 6.5-8% for 2026 to 2028.

However, S&P Global said it sees stronger GDP growth in the region this year compared with 2023, although there are risks to this outlook.

“In several economies, policy-related risks have risen following elections that are generating uncertainty over reforms, fiscal trajectories, and institutional frameworks,” it said.

S&P Global expects Philippine GDP growth to average 5.8% this year, falling short of the government’s goal.

“Policy uncertainty could exacerbate existing risks. Policy uncertainty will be a key factor late in the year and into 2025 as US elections play out and new administrations in key EMs begin to execute their plans,” it added.

The US presidential election is scheduled for Nov. 5.

In the Philippines, the midterm elections will be held in May 2025 and will have Filipinos voting for senators and local officials such as congressmen, governors, and mayors, among others.

Meanwhile, the credit rater said it also expects the delay in US Federal Reserve’s easing cycle to also impact monetary loosening in the region.

“A later-than-anticipated start to the Fed’s interest rate cuts will contribute to slower monetary policy normalization in most major EMs, though our view on terminal benchmark interest rates remains unchanged,” it said.

BSP Governor Eli M. Remolona, Jr. has said that the central bank is on track to begin cutting rates by August this year.

The BSP could cut by up to 50 basis points (bps) for the full-year, he added, through 25-bp cuts in the third and fourth quarters.

S&P Global also noted easing food inflation in the region. “Food inflation has been moderating in the past 12 months, but at an uneven pace across EMs.”

In the Philippines, headline inflation slowed to 3.7% in June from 3.9% in May, marking the seventh straight month that inflation settled within the BSP’s 2-4% target band.

Though food inflation in June quickened to 6.5%, rice inflation eased to 22.5% from 23% a month earlier. Rice accounts for nearly half of overall inflation.

“Most economies in the region are highly dependent on food imports, particularly on wheat, rice and corn,” S&P Global said.

“Despite some moderation, prices for several key food commodities, such as wheat and rice, remain around 10-15% above pre-2022 levels. Inflationary pressures stemming from elevated food prices continue to complicate disinflation trajectories for food-importing EMs,” it added.

For the first half of the year, inflation averaged 3.5%, slightly above the central bank’s 3.3% full-year forecast.

Source: Business World