BMI forecasts 6.3% growth for PHL in 2025

Further monetary easing is seen to prop up gross domestic product (GDP) growth in the Philippines, Fitch Solutions’ unit BMI said, as this would provide much-needed support to domestic demand.

“For the Philippines, we are expecting growth to accelerate from 5.8% in 2024 to 6.3% in 2025. The main driver is monetary policy loosening,” BMI Asia Country Risk Analyst Shi Cheng Low said in a webinar on Tuesday.

The government is targeting 6-8% GDP growth this year.

For the first nine months of 2024, growth averaged 5.8%. Preliminary fourth-quarter and full-year GDP data will be released on Jan. 30.

“Keep in mind that investment has been quite weak in the first quarter and third quarter. So about 150 basis points (bps) of cuts by the end of 2025 should help boost the Philippine economy going forward,” he added.

The Bangko Sentral ng Pilipinas (BSP) began its easing cycle in August last year, delivering 75 bps worth of cuts for 2024.

The central bank has signaled further easing this year as the current policy rate at 5.75% is still in “restrictive territory,” BSP Governor Eli M. Remolona, Jr. said.

Mr. Low said another growth driver is the rebound in private consumption as inflation continues to ease.

Headline inflation averaged 3.2% in 2024, within the 2-4% central bank target.

“We expect inflation to stay within the target for the rest of the year, obviously barring external shocks and also because the labor market has actually been improving,” he said.

This year, the BSP expects inflation to average 3.3%.

However, Mr. Low said their growth forecast for this year hinges on the expectation that US President-elect Donald J. Trump would not be aggressive in the implementation of his tariff proposals.   

“If that’s the case, we are going to lower our projections downwards. And I think that’s the biggest risk for the Philippines because the US is one of [its] biggest trading partners,” he said.

Mr. Trump, who is set to assume the presidency on Jan. 20, has pledged to impose import tariffs of up to 10% across the globe and 60% for Chinese goods.

“In sum, we expect the growth outlook to improve at least for the Philippines over the coming quarters,” Mr. Low added.

SERVICE BOOST

Meanwhile, HSBC in a separate commentary said the Philippines is expected to be one of the fastest-growing economies in Southeast Asia, mainly driven by a boost in services.

HSBC Global Private Banking and Wealth Chief Investment Officer for Southeast Asia and India James Cheo said the Philippine economy is “expected to deliver one of the strongest growths in the region this year.”

HSBC expects the Philippines’ GDP to expand by 6.3% this year and 6.7% in 2026.

“Philippine economic growth in 2025 will be driven by robust domestic consumption, a thriving business process outsourcing (BPO) sector, and increasing investments in digital services.”

“The country’s unique strength in service exports, including IT and BPO services, provides a buffer against global trade uncertainties and tariff risks.”

Data from the BSP showed the Philippines booked $37.4 billion worth of services exports in the first nine months, up 6.25% from a year earlier.

“Service exports and overseas remittances, which remain key economic pillars, will continue to contribute significantly to economic resilience and stability in the Philippines,” Mr. Cheo said.

He also said the country’s monetary and fiscal policies are “aligned to support growth while managing risks.”

Mr. Cheo said the central bank would likely deliver further rate cuts this year.

“We forecast the BSP to cut the policy rate to 5% in the third quarter of 2025, as it cautiously navigates external risks like potential volatility in the peso and the US Federal Reserve’s easing cycle.”

“On the fiscal side, the government’s infrastructure agenda remains a key growth driver, supported by revenue-enhancing measures,” he added.

Meanwhile, HSBC expects the peso to “face volatility from a stronger dollar but its high carry will be a buffer.”

“We are bullish on the peso and expect it to stay resilient at P59.8 against the US dollar by end-2025.”

The peso closed at P58.62 a dollar on Tuesday, strengthening by eight centavos from its P58.70 finish on Monday. Last year, the peso fell to a record-low P59-a-dollar level thrice.

MONETARY POLICY BUFFER

Meanwhile, Bank of America (BofA) Global Research in a separate report said economies in Southeast Asia might need to deploy varying policies to cushion the spillovers from Mr. Trump’s tariff plans.

“If trade shocks materialize, we reckon that the fiscal-monetary policy mix to cushion any softening of external demand may differ across countries,” it said.

“We think that policy mix may be more balanced in the case of Malaysia and Singapore, more skewed towards fiscal policies for Indonesia and Vietnam, and more skewed towards monetary policies for the Philippines and Thailand.”

For the Philippines, BofA said monetary policy “may have to play a greater role.”

“Inflation is at more manageable levels after the reduction of rice import duties in mid-2024, and BSP is less sensitive to FX (foreign exchange) movements compared with Bank Indonesia,” it said.

“As such, BSP could pursue deeper policy rate and RRR cuts. On the other hand, the government has less scope to raise spending significantly, with the fiscal deficit target for 2025 already above 5% of GDP and government debt at record high levels.”

Source: Business World

PH at risk from structural weaknesses, political row

Structural weaknesses and political volatility could pressure the Philippines' economic and fiscal performance, Fitch Ratings said on Wednesday.

The country's credit rating — an investment-grade "BBB" with a stable outlook — is being constrained by low GDP per capita, it also said in a report.

"Governance standards are weaker than at peers," the debt watcher noted, but added that World Bank indicators "somewhat overstate this."

Gross domestic product growth has slowed from a post-Covid pandemic rebound, it said, and will likely expand by 5.7 percent this year — up from 2023's 5.5 percent but below the government's 6.0- to 6.5-percent target.

Domestic demand will drive 2024 growth, Fitch said, and this will likely improve to 6.2 percent next year due to interest rate cuts, spending on infrastructure, and trade and investment reforms.

This outlook falls within the government's 6.0- to 8.0-percent goal for 2025 to 2028.

Fitch said the Philippines' rating reflected "strong medium-term growth" that would support the size of the economy — said to be large in relation to its "BBB" peers — and a gradual reduction in the debt-to-GDP ratio.

The latter is expected to fall from next year due to strong growth and lower fiscal deficits. The central government deficit was forecast to hit 5.7 percent of GDP this year and hit 4.9 percent in 2026 after averaging 5.1 percent as of end-September.

While higher than the government's target, these still are an improvement from 6.2 percent in 2023 and the 8.6-percent peak hit in 2021.

"Our narrower general government deficit forecast of 4.4 percent of GDP for 2024 reflects social security and local government surpluses," Fitch added.

It warned, however, that escalating political conflicts ahead of next year's midterm elections "could, if sustained, weigh on macroeconomic and fiscal performance."

Fitch noted that the support of Vice President Sara Duterte and her father, former president Rodrigo Duterte, was instrumental in President Ferdinand Marcos Jr.'s landslide win in 2022.

Both campaigned on a unity platform that clearly cracked this year with Sara — under investigation for misuse of public funds — threatening to have Marcos killed.

Externally, policies to be implemented by incoming US President Donald Trump pose risks for the Philippines along with other economies.

A further strengthening of the dollar from US trade protectionism could put further pressure on the peso, which has fallen nearly 5 percent as of October, and inflation.

"The Philippines would [also] be vulnerable to a change in US immigration policy, given the importance of remittances for domestic consumption," Fitch said.

Monetary policy, however, is a bright spot, and Fitch said that the Bangko Sentral ng Pilipinas had made strides in managing inflation, which at 3.2 percent as of end-November was down from 6.0 percent a year ago and within the 2.0 to 4.0 percent target.

"We forecast inflation to stay around these levels in 2025-2026, leading to a further 100 bps (basis points) of rate cuts in 2025," it said.

"A credible inflation-targeting framework and flexible exchange rate regime contribute to a sound economic policy framework and support the country's rating," Fitch said.

Source: Manila Times

PHL likely to grow by 6% this year

Philippine gross domestic product (GDP) growth is expected to average 6% this year, at the low end of the government’s 6-7% target, according to analysts. 

Fitch Solutions’ unit BMI lowered its Philippine GDP growth forecast to 6% this year from 6.2% previously, after weaker-than-expected second-quarter data.

“The latest growth outturn clearly showed that we have overestimated the health of the Philippine economy,” it said.

The Philippine Statistics Authority (PSA) last week reported that GDP expanded by 6.3% in the second quarter, quickening from the revised 5.8% in the first quarter and beating the 6% median estimate in a BusinessWorld poll.

BMI had earlier projected 6.5% GDP growth for the second quarter.

For the first half of the year, GDP growth averaged 6%. In order to meet the low end of the government’s 6-7% target, the economy would need to expand by at least 6% in the second semester.

“To reach our previous 6.2% growth projection for 2024, the economy must expand by around 6.4% in the second half, which we think is unlikely,” BMI said.

BMI said that the Philippines’ second-quarter growth print “paints a misleading picture of the economy’s health.”

“Reinforcing our view, the 0.5% quarter-on-quarter expansion recorded was the softest pace since the second quarter of 2023. Much of this weakness stemmed from a poor performance in the external sector, as we had expected,” it said.

On a seasonally adjusted quarter-on-quarter basis, GDP grew by just 0.5%, slower than the 1.1% in the first quarter.

“Indeed, exports contributed just 1.2 percentage points (ppts) to headline growth, halving the strong 2.4-ppt contribution in the prior quarter. Along with a strong pickup in imports, net exports detracted 0.8 ppt from the headline figure,” it added.

PSA data showed that exports of goods and services grew by 4.2% in the second quarter, much slower than the 8.4% growth a quarter ago.

“Against the backdrop of a slowing global economy in the second half, external demand will prove even less supportive over the coming quarters,” it added.

Despite this, BMI noted that domestic demand continues to hold up “pretty well.”

Growth in household consumption slowed to 4.6% from 5.5% a year ago. Private consumption accounts for about three-fourths of the economy.

“Despite a dip in private consumption contribution from 3.4 ppts in the first quarter to 3.2 ppts in the second quarter, the rebound in investment activity more than made up for it,” it said.

Gross capital formation or the investment component of the economy grew by 11.5% in the second quarter, faster than the 0.5% growth in the previous quarter and 0.7% a year ago.

“Contribution from gross fixed capital formation jumped from 0.5 ppt to 2.5 ppts, the highest level in almost two years. We expect imminent rate cuts by the Bangko Sentral ng Pilipinas (BSP) to provide a further lift to domestic activity,” it said.

CITI OUTLOOK

On the other hand, Citigroup, Inc. raised its GDP growth projection to 6% this year from 5.9% previously due to expectations of improving economic conditions.

“While household consumption is likely to only gradually recover, there are supporting factors such as strong employment, as well as the expected lower inflation and interest rates in the coming months,” Citi economist for the Philippines Nalin Chutchotitham said in a report.

Inflation is also seen to continue to ease after the spike in July. “We also agree with the BSP that inflation is projected to decline from August onwards,” it said.

Headline inflation rose to 4.4% in July from 3.7% in June, its fastest pace in nine months.

In the first seven months of the year, headline inflation averaged 3.7%. The BSP expects inflation to average 3.3% this year.

For 2025, Citi sees growth steady at 6%. This would be below the 6.5-7.5% government target.

“We maintain our expectation of 2025 growth at 6%, noting increasing external headwinds from the slowdown in several advanced economies (especially the US), which are the Philippines’ key trading partners and sources of overseas workers’ remittances,” Ms. Chutchotitham said.

EASING TO START

Meanwhile, Citi said that it expects the BSP to commence its easing cycle at its meeting on Thursday.

“We continue to expect a 25-bp rate cut starting at the Aug. 15 policy meeting despite a temporarily high inflation print in July,” Ms. Chutchotitham said.

Citi also expects the Monetary Board to cut rates by 25 bps at its October and December meetings, for a total of 75 bps for the full-year 2024.

“The BSP may, with some small probability, err on the cautious side and stand pat in August, given July’s inflation print at 4.4% year on year amid volatile food and energy prices,” Ms. Chutchotitham said.

A BusinessWorld poll conducted last week showed that nine out of 16 analysts surveyed expect the Monetary Board to deliver a 25-bp rate cut at Thursday’s review. This would bring the target reverse repurchase rate to 6.25% and would be the first reduction in benchmark borrowing costs since November 2020, or during the coronavirus pandemic.

BSP Governor Eli M. Remolona, Jr. last week said they may be “a little bit less likely” to cut rates at its upcoming meeting amid the uptick in July inflation.

At the same time, ING Bank N.V. Research Head and Chief Economist for Asia and the Pacific Robert Carnell said he now expects the BSP to keep rates on hold on Thursday due to recent market volatility.

“Were it me… I probably would leave it this month and wait until the market’s a little calmer,” he said at a briefing on Monday. “The thing that I think makes it more of a coin toss is the volatility of the market backdrop. We have been through a really, pretty hectic and volatile couple of weeks.”

Stronger-than-expected GDP data in the second quarter and July inflation also don’t support the August rate cut, Mr. Carnell said.

“The GDP numbers could have supported that had they been weaker… Having said that, the inflation numbers made it slightly less likely that they’d be easing in August,” he said.

Mr. Carnell also noted that the BSP should wait for other central banks to cut rates first to see how the market reacts.

He expects the Fed to cut by 100 bps this year — a 50-bp cut in September, a 25-bp cut in November and another 25-bp cut in December.

“I just think the optics will look a little bit better in a month’s time, and there’ll also be that sort of safety in numbers at that stage, because we will have the Fed easing by then,” he said.

Aside from its scheduled policy meetings, Mr. Carnell also said that the BSP could still implement an off-cycle rate cut, but this move carries the risk of unnecessarily alarming the market.

Mr. Remolona earlier said that they are “always open” to off-cycle rate cuts.

Source: Business World