Policy easing to gather pace

A tight fiscal policy and weakening flows of remittances would weigh on the economy this year, although additional easing moves by the Bangko Sentral ng Pilipinas (BSP) and softening inflation could help buttress growth, Capital Economics said.

In a commentary, the London-based think tank said the country’s gross domestic product (GDP) is expected to expand 5.1 percent in 2024 which, if realized, would fall short of the 6 to 7 percent growth target of the Marcos administration.

The economy is expected to ‘remain weak” over the next quarters, it added, as it flagged headwinds hurting consumption—which historically accounts for about 70 percent of GDP—as well as a limited fiscal space that could crimp the government’s contribution to growth.

For 2025, Capital Economics projected growth to settle at 5.5 percent, still below the government’s 6.5 to 7.5 percent goal.

“On the plus side, lower interest rates (the central bank began its easing cycle in August) and falling inflation (which should boost household incomes) should provide some support to consumption,” the think tank said.

”However, this is likely to be offset by slower growth in remittances and weaker export demand. Fiscal policy is also likely to hold back growth. The government is aiming to reduce government debt, which shot up during the pandemic, to more sustainable levels,” it added.

At its Aug. 15 meeting, the policy-making Monetary Board (MB) slashed the benchmark rate by a quarter point to 6.25 percent. That kicked off what Governor Eli Remolona Jr. had called a “calibrated” easing cycle while hinting at another cut of the same size either at the October or December meeting of the MB.

Weeks after that decision, government data showed inflation slowed to 3.3 percent in August, easing back to within the 2 to 4 percent target range of the BSP. State statisticians had said rice price inflation may fall to single-digit level in September due to reduced tariffs on the staple grain, which can help tame the overall growth of prices in the coming months.

Meanwhile, the BSP cut took into account the 6.3 percent economic growth in the second quarter, which was magnified by favorable base effects that masked the 4.6 percent growth in consumption, a pace that was uncommonly low for the Philippines.

With growth set to “struggle” and inflation likely to remain low, Capital Economics said further easing is likely over the remainder of this year and in the first half of next year.

”We expect inflation to remain subdued over the coming months, helped by a combination of weak growth, beneficial base effects and government efforts to boost the supply of agricultural goods,” it added.

Source: Inquirer

PH financial assets posted fastest growth of 13.2% in 2023

The Philippines, among the less affluent economies in Asia, posted a 13.2-percent growth in net financial assets to 1,940 euros per capita in 2023, based on the 15th edition of the “Global Wealth Report” released by Allianz Global.

The report said the growth of the Philippines financial assets in 2023 was the highest in six years and led the region, outpacing China and India. It provided a comprehensive analysis of the asset and debt situation of households in nearly 60 countries.

It said that in the Philippines, the growth was driven by securities, which increased by 16 percent. Bank deposits and insurance/pensions also saw strong growth, but insurance/pensions remained underrepresented in Filipino portfolios.

Real growth, adjusted for inflation, was 6.8 percent, surpassing pre-pandemic levels. Liabilities also grew, leading to a debt ratio of 27.1 percent, which remained relatively low.

According to the report, 2023 witnessed a robust recovery in global financial assets, growing by 7.6 percent and reaching 239 trillion euros.

The recovery was widespread, with only New Zealand and Thailand experiencing negative growth.

Emerging economies, including those in Asia and North America, displayed growth exceeding 8 percent. However, the growth advantage of emerging economies over advanced economies shrunk considerably, signifying a more unequal world in the face of increasing fragmentation.

Financial assets of Asian households increased by 7.5 percent in 2023, totaling 63.8 trillion euros. While all asset classes contributed, bank deposits were the primary driver.

Source: Manila Standard

ADB keeps 6% 2024 PH growth outlook

The Asian Development Bank (ADB) kept its growth outlook on the Philippines for this year and next despite the support that consumption can get from softer inflation, as it flags external headwinds that can weigh on the economy.

In its flagship Asian Development Outlook released on Wednesday, the ADB retained its gross domestic product (GDP) growth forecast for its host country at 6 percent for 2024 and 6.2 percent in 2025.

If the prediction of ADB comes true, GDP growth this year would match the lower end of the 6- to 7-percent target range of the Marcos administration, but would fall short of the 2025 goal of 6.5 to 7.5 percent.

Nevertheless, the Philippines would tie with Vietnam as the fastest growing economy in Southeast Asia in 2024 and 2025.

Both countries would also beat the 5-percent average growth rate projected for Developing Asia—which refers to the 46 developing members of the ADB, for 2024. Next year, this region is forecast to grow at a slower pace of 4.9 percent.

For ADB, consumption, a traditional growth driver in the Philippines, could get some boost from lower consumer prices. The multilateral lender lowered its inflation forecast for the country to 3.6 percent in 2024, from 3.8 percent previously, partly due to lower tariffs on rice imports.

ADB said inflation was expected to ease further to 3.2 percent in 2025 compared to the previous projection of 3.4 percent.

In a statement, Pavit Ramachandran, ADB’s country director for Philippines, said “most of the ingredients for the Philippines’ sustained economic growth are in place.”

“Rising government revenues are boosting public expenditures on infrastructure and social services, increasing employment is driving consumption, and reforms to open the economy to more investments are underway,” Ramachandran said.

“With inflation slowing, the country is in a strong position to lead growth in Southeast Asia,” he added.

Headwinds

Government data showed the economy grew 6.3 percent in the second quarter. But analysts had said the figure was magnified by favorable base effects that masked the 4.6-percent growth in consumption, a pace that was uncommonly low for the Philippines.

To help stimulate household spending, the Bangko Sentral ng Pilipinas (BSP) in August cut the policy rate by a quarter point to 6.25 percent. By reducing borrowing costs, the BSP wants to encourage bank lending and consumption.

But the ADB said the Philippines would not be spared from external headwinds dragging global growth.

“External factors such as a sharper slowdown in major advanced economies and the People’s Republic of China, financial volatility due to US monetary policy decisions, geopolitical tensions, and rising global commodity prices also pose threats to growth,” the Bank said.

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Source: Inquirer