PH growth prospects for 2024, 2025 'intact'

The country's growth prospects for this year and the next "remain intact" based on Bangko Sentral ng Pilipinas (BSP) estimates.

Gross domestic product (GDP) growth is expected to "remain robust" in the first half of 2024, decelerate for the rest of the year and then pick up in 2025, highlights of last month's Monetary Board policy meeting showed.

"This outlook is consistent with the expected shift to a slightly negative output gap in 2024 to 2025, suggesting that the growth momentum of the economy remains firm and that a hard landing appears to be unlikely," the report states.

Monetary authorities decided to keep interest rates steady last April 8, noting that inflation is still expected to remain within target for 2024 to 2026 despite upside risks.

"[L]atest demand indicators suggested that domestic growth prospects over the medium term remained largely intact, even as overall economic activity continues to gradually respond to tighter financial conditions," the report also states.

Surging inflation prompted the Monetary Board to raise key interest rates by a total of 450 basis points beginning May 2022. The BSP's benchmark rate currently stands at 6.5 percent, the highest since 2007.

Stubborn inflation and high borrowing costs weighed on last year's GDP growth, which at 5.6 percent was significantly lower than 2022's 7.6 percent and also fell short of the 6.0- to 7.0-percent target.

A rebound is expected this year but mounting headwinds have prompted economic managers to trim the 2024 goal to a "more realistic" 6.0 to 7.0 percent from 6.5 to 7.5 percent.

Inflation finally returned to the 2.0- to 4.0-percent target last December and has stayed within the range since the start of 2024. The BSP expects the rate to top 4.0 percent sometime in the second quarter but then fall back over the rest of the year.

The mean inflation forecast for 2024 remains at within-target 3.9 percent based on a March poll of external forecasters, the report states.

The median forecasts for 2025 and 2026, meanwhile, rose to 3.6 percent from 3.5 percent and 3.4 percent, respectively.

For 2024, the median forecast was unchanged at 3.8 percent but rose to 3.4 percent for 2025 and 3.3 percent for 2026 from 3.3 percent and 3.1 percent, respectively.

April's inflation print was a lower-than-expected 3.8 percent while preliminary first-quarter GDP data will be released this Thursday. The data will be considered by the Monetary Board when it again meets to discuss policy next week.

Source: Business World

Slowing PHL remittances may weaken consumption

Philippine domestic demand could ease this year as remittance inflows are muted by reduced overseas hiring, Pantheon Macroeconomics said.

“Domestic demand in the Philippines is continuing to struggle, reflecting in large part the oppressive headwinds facing consumers,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco and Senior Asia Economist Moorthy Krshnan said in a report.

It noted that remittances, which have slowed this year, might fail to boost domestic demand in the coming months.

“Remittances have saved the day in the past, such as in 2022, when they helped to fuel the post-pandemic release of pent-up demand,” according to the report.

Filipino consumers, who have been battling rising prices of commodities such as rice, meat and oil, rely heavily on remittances sent home by relatives abroad.

“We see no prospect of this savior making a comeback in 2024, if the first two months of the year are anything to go by,” Pantheon said.

Cash remittances in February rose by 3% to $2.65 billion from a year earlier. It fell by 6.7% month on month.

“The year-over-year increase — in local-currency terms — would fall back into the red in the middle of this year if this rate of growth persists,” it said.

Pantheon also noted that overseas placements, which slowed to 28% year on year in January and have dropped since early 2021, could also affect remittance flows.

Borrowing remains a driver of household spending, as consumer credit remained above average since late 2022, Pantheon said. It jumped to 25.2% in February, as credit card and motor vehicle loans rose by 30.1% and 19.1%, respectively.

Pantheon said rampant borrowing is “fundamentally unsustainable and likely to result in a more painful payback for the economy down the line.” A “climbdown” in consumer credit is likely to take place this year, it added.

Based on Pantheon’s computations, the share of Philippine households with savings recovered “only modestly” to 31.9% in the first quarter from 30.1% a quarter earlier.

“Meanwhile, the proportion of those who could set aside any savings has seen lower lows and lower highs in the past two surveys,” it added.

Philippine unemployment dropped to a two-month low of 3.5% in February, which is expected to offset still-rampant borrowing and lower remittances. But Pantheon said the downtrend in job openings is a risk.

Pantheon said Philippine gross domestic product (GDP) growth in the first quarter was likely one of the fastest in the region at 5.8%, behind Taiwan (6.1%) and ahead of Indonesia (5%) and Singapore (2.7%).

The Philippines would outpace its peers in the second quarter with 6.2% GDP growth, over Indonesia (4.4%), Taiwan (3.6%) and Singapore (2.6%), it added.

The Philippine Statistics Authority will release first-quarter GDP data on May 9.

Inflation could quicken to 3.8% in June before cooling to 2.7% in September, but could speed up to 3.1% in December, Pantheon said.

Source: Business World

IMF hikes PH forecasts

Philippine economic growth is expected to again be one of the highest in the region with the International Monetary Fund (IMF) having raised its forecasts for this year and the next.

In its latest World Economic Outlook (WEO), the IMF forecast 6.2-percent gross domestic product (GDP) growth for both 2024 and 2025, up from 6.0 percent and 6.1 percent, respectively.

The change for 2024 falls within the government's downwardly revised 6.0- to 7.0-percent target, while the 2025 projection is short of the official 6.5- to 7.5-percent goal.

Gross domestic product (GDP) growth averaged 5.5 percent in 2023, below the 6.0- to 7.0-percent target and markedly slower than 2022's 7.6 percent, as stubborn inflation and high interest rates dampened consumption.

It was still one of the highest in Asia, exceeded only by Macau's 80.6 percent and India's 7.6 percent.

The revised 2024 and 2025 forecasts for the Philippines are also among the highest for the region, again only topped by India (6.8 percent) and Macao (13.9 percent) for this year and by India (6.5 percent), Macao (9.6 percent) and Vietnam (6.5 percent) next year.

Philippine growth is also expected to outperform Asia's 4.5 percent (2024) and 4.3 percent (2025), emerging and developing Asia's 5.2 percent and 4.9 percent, the Asean-5's 4.5 percent and 4.6 percent, and emerging Asia's 5.2 percent and 4.8 percent, respectively.

A 2024 rebound is widely expected but headwinds such as tensions in the Middle East and inflation risks recently prompted the government to temper its expectations and macroeconomic assumptions.

Ragnar Gudmundsson, IMF resident representative, said "real GDP growth for 2024 was revised slightly, reflecting carryover from a better-than-expected outturn in the last quarter of 2023."

Growth next year, meanwhile, will be "supported by an acceleration in domestic demand and investment."

Gudmundsson said that structural reforms to address infrastructure and education deficiencies, attract more foreign direct investments (FDI), and leverage opportunities in the digital economy should support growth of approximately 6.0-6.5 percent.

"These reforms should be complemented by strengthening existing social protection schemes and addressing climate change through a more integrated strategy that includes a carbon pricing scheme," he added.

Inflation, meanwhile, is expected to end the year at 3.6 percent, within the 2.0- to 4.0-percent target, and further decline to 3.0 percent in 2025.

Gudmundsson said the rate, which edged up to 3.7 percent in March and is widely expected to breach target in the second quarter, would gradually approach 3.0 percent in the second half of this year.

However, "risks remain tilted to the upside as a surge in food or fuel prices could lead to increased pressure for greater wage hikes and persistence in core inflation."

"The BSP should maintain a sufficiently restrictive monetary policy stance until inflation fully returns to target," Gudmundssion said.

"Scope for a gradual reduction in the policy rate could emerge later this year provided that inflation expectations are firmly anchored and upside risks to the inflation outlook do not materialize," he added.

The BSP's policymaking Monetary Board has held fire for four straight meetings, leaving the benchmark rate at a near 17-year high of 6.5 percent.

Central bank Governor Eli Remolona Jr. has said that rate cuts — originally expected by analysts to start as early as June — could be delayed well into the year or possibly the first quarter of 2025 given inflation and growth risks.

As for the jobs situation, the IMF said that unemployment could worsen to 5.1 percent this year and 5.2 percent in 2025, from 4.3 percent in 2023.

"Even though the most recent indicators have been encouraging, special attention needs to be paid to the agricultural sector that may be negatively affected by the El Niño phenomenon and adverse weather conditions this year," Gudmundsson said.

Also, while the demand for workers in the construction sector may be supported by the acceleration of infrastructure projects, he said that the passage of legislation that would contribute to upskilling was still needed.

Source: Manila Times