PHL fails to meet 2024 growth goal

The Philippine economy expanded by a weaker-than-expected 5.2% in the fourth quarter, bringing full-year growth to below the government’s target amid subdued consumption and lower farm output.

Data from the Philippine Statistics Authority (PSA) showed that gross domestic product (GDP) expanded by 5.2% in the October-to-December period, slower than the 5.5% in the same period in 2023.

This matched the 5.2% expansion in the third quarter, which was the slowest GDP since 4.3% in the second quarter of 2023.

Full-year growth came in at 5.6%, falling short of the revised 6-6.5% target. The 2024 GDP growth was slightly faster than 5.5% in 2023. 

“In 2024, we faced numerous setbacks like extreme weather events, geopolitical tensions, and subdued global demand, similar to the challenges we encountered in 2023,” National Economic and Development Authority (NEDA) Undersecretary for Policy and Planning Group Rosemarie G. Edillon said. “This suggests that these conditions may represent the new normal.”

On a seasonally adjusted quarterly basis, GDP posted growth of 1.8% in the fourth quarter from 1.5% in the previous quarter.

Among Asian countries that have released their data, Ms. Edillon said the Philippines had the third-fastest GDP growth in the fourth quarter, behind Vietnam (7.5%) and China (5.4%), and ahead of Malaysia (4.8%).

“While this is below our target, we continue to be one of the fastest-growing economies in both the region and the world. This is despite external and local challenges such as extreme weather events, geopolitical tensions, and subdued global demand,” Finance Secretary Ralph G. Recto said in a separate statement.

Ms. Edillon attributed the slower growth to the impact of a series of typhoons on the agriculture sector in the last few months of 2024.

Agriculture, forestry, and fishing (AFF) shrank by 1.8% in the October-December period, improving from the 2.7% contraction a year ago.

In 2024, agriculture declined by 1.6%, a reversal of the 1.2% growth in 2023.

“The agriculture sector has faced significant setbacks due to typhoons, droughts, and other climate-related disruptions,” Ms. Edillon said.

Separate PSA data showed agricultural output contracted by a record 2.2% to P1.73 trillion in 2024, brought by El Niño and then followed by La Niña. Farm output’s decline last year was the worst in almost three decades (26 years) or since the 7% contraction in 1998.

“The AFF sector, which contributes around 8% to GDP and provides livelihood for about one-fourth of the workforce, faced disruptions in crop production, livestock, and fisheries, further compounding its vulnerabilities,” Ms. Edillon said.

At the same time, the industry sector grew by 4.4% in the fourth quarter, slowing from 5.1% a year ago. For 2024, industry expanded by 5.6%, improving from 3.6% in 2023.

Construction and manufacturing were the main contributors to industry’s growth. Construction growth slowed to 7.8% in the fourth quarter from 9% in the same period a year ago, bringing the full-year growth to 10.3%.

“Manufacturing grew only by 3.1%. This performance has been hampered by subdued global demand due to geopolitical tensions and the slow recovery of advanced economies,” Ms. Edillon said.

“There are industries like semiconductors that still need to update their product offerings to meet changing demand.”

The services sector, which accounted for 62% of total GDP, expanded by 6.7% in the October-to-December period, slowing from 7.4% in the same period in 2023. For the full year, services growth stood at 6.7%.

LACKLUSTER CONSUMPTION

Meanwhile, household final consumption expenditure, which accounts for over 70% of the economy, grew by 4.7% in the fourth quarter, slowing from 5.2% in the third quarter and 5.3% in the same quarter in 2023.

For the full year, household consumption rose by 4.8%, slowing from 5.6% in 2023. Private consumption accounts for about three-fourths of the economy.

Ms. Edillon said household consumption was affected by the series of typhoons that hit the country in the fourth quarter.

“This one has dampened the growth momentum… Although we did see that there was an increased spending on travel, on transport, and on recreation and culture. But it was not enough to counter the slowdown in the other expenditure items,” she said.

Ms. Edillon said high prices of food, particularly vegetables, also weighed on consumption in the fourth quarter.

“We’re hoping that this is very temporary… We hope that the situation will stabilize soon,” she added.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said the latest GDP data show a renewed deterioration in household consumption.

“This (4.7% rise in consumption in the fourth quarter) marks a return to the 10-year-plus lows seen in the first half of last year, if we’re to exclude the anomalous COVID-19 years, with the full-year outturn of 4.8% representing the slowest growth since 2010,” Mr. Chanco said in a report.

“We’d like to reiterate that private consumption is likely to remain subdued even though inflation has normalized, and interest rates are now falling, as household balance sheets are still weak, plagued by low savings and high debt,” he added.

GOV’T SPENDING

PSA data also showed government final consumption expenditure (GFCE) rose by an annual 9.7% in the October-to-December period, a turnaround from the 1% decline in the same period in 2023.

In 2024, government spending grew by 7.2%, faster than 0.6% seen in 2023.

“We are quite happy with this performance of GFCE… That particular spending growth is actually quite respectable and in fact supportive of the entire economy,” Ms. Edillon said.

In a separate interview, Ms. Edillon said seven infrastructure flagship projects (IFPs) were completed last year and 13 more are on track to be finished this year.

Gross capital formation, the investment component of the economy, grew by 4.1% in the fourth quarter, sharply slowing from 11.6% in the same quarter in 2023.

For the full year, gross capital formation expanded by 7.5%, faster than 5.9% a year ago.

Ms. Edillon said that in general, the investments remain fine as there is still a huge backlog of infrastructure projects that will “tide us over until we get all these big investments coming in.”

“With respect to foreign investments, you still have geopolitical tensions. This is a big problem but we’re hoping these are very temporary,” she added.

Meanwhile, exports of goods and services grew by 3.2% in the fourth quarter, bouncing back from the 2.5% contraction in the same period a year ago, driven by a 13.5% rise in exports of services. Exports of goods fell by 4.6%.

For 2024, exports of goods and services expanded by 3.4%, faster than the 1.4% growth in the previous year.

Imports increased by 3.2% in the fourth quarter, faster than the 2% in the prior year.

For the full year, imports expanded by 4.3%, quicker than the 1% growth in 2023.

OUTLOOK

Meanwhile, NEDA’s Ms. Edillon said the government is confident on hitting at least the lower end of the 6-8% target for 2025 as government agencies are instructed to “think continuity and maximum impact.”

“Looking ahead to 2025, we want to regain our growth momentum driven by strategic investments and initiatives designed to strengthen resilience and lay the foundation for long-term, inclusive growth,” she added.

Mr. Recto said the government remains optimistic about the economic outlook this year.

“A lower inflation rate gives us more room to ease interest rates, which will further boost consumption,” he added.

Capital Economics Senior Asia Economist Gareth Leather said he expects the Philippine economy to grow by 6% this year.

“Strong and steady growth supports our view that the easing cycle will remain gradual over the coming months,” Mr. Leather said in a report.

The Bangko Sentral ng Pilipinas began its rate-cutting cycle in August last year, delivering a total of 75 bps worth of reductions.

“A key uncertainty over the coming year is whether and to what extent Donald Trump follows through with his threats to impose tariffs and clamp down on immigration. The Philippines is less vulnerable than other parts of the region to tariffs. However, Trump’s deportation plans could affect remittances from the US to the Philippines, which are equivalent to around 3.5% of the country’s GDP,” Mr. Leather said.

Source: Business World

Recovery in consumption seen to fuel PHL growth

A recovery in household consumption could drive Philippine gross domestic product (GDP) growth to the 6% range this year, HSBC Global Research said.

“We think household consumption in the Philippines should return, bit by bit, to its regular levels, bringing overall gross domestic product growth back to the range of 6% or more,” HSBC economist for ASEAN Aris D. Dacanay said in a report.

The Philippines’ GDP expanded by 5.2% in the third quarter, its weakest growth in five quarters. This brought the nine-month growth average to 5.8%.

The government is targeting 6-6.5% growth for 2024 and 6-8% for 2025 to 2026.

“Consumption should also be boosted over the near term with the recent depreciation in the Philippine peso against the US dollar boosting the purchasing power of every US dollar remitted.”

HSBC also cited a stronger recovery in non-durable consumer goods.

“Non-durable spending may be improving fast, but spending on big-ticket items, such as cars and real estate, will need more time to return to normal.”

“These goods are large expenditures by nature, potentially requiring households to acquire credit. To optimize one’s borrowing costs, households may be waiting for the central bank’s easing cycle to end before eventually deciding whether to borrow money or not.”

Mr. Dacanay said household consumption is unlikely to be affected by the Trump administration’s aggressive tariff policy.

“Remittances, demographics, and services exports — three sectors of the economy that drive consumption — are subject to minimal tariff risks, at best. So, to monitor the Philippine economy in 2025, watching household consumption will be key,” he said.

“The economy does have some layer of insulation; household consumption remains the country’s main growth driver, and no other economy can put a tariff on consumption.”

Markets are pricing in the impact of US President Donald J. Trump’s aggressive tariff proposals. He has pledged to impose tariffs of up to 60% on China, 25% on Canada and Mexico as well as a 10% universal tariff.

Mr. Trump also said he planned to slap tariffs on imported computer chips, pharmaceuticals and steel as part of efforts to encourage manufacturers to make these products in the US.

“With all the headlines on trade and tariffs, there is a sense of relief that the Philippines is the least affected in ASEAN (Association of Southeast Asian Nations),” Mr. Dacanay added.

HSBC noted that household consumption has slowed amid elevated inflation and interest rates, which dampened purchasing power.

Private consumption grew by 5.2% in the third quarter of 2024, improving from 4.7% in the second quarter.

“But all this is already behind us. Inflation is back to within the central bank’s 2-4% target band, while monetary policy is amidst its gradual easing cycle,” Mr. Dacanay said.

Headline inflation averaged 3.2% in 2024. The BSP also expects inflation to remain within the 2-4% target band from this year to the next, as its baseline projections are at 3.3% and 3.5% for 2025 and 2026, respectively.

The central bank began its rate-cutting cycle in August last year, delivering a total of 75 basis points (bps) worth of cuts as of end-2024. This brought the key rate to 5.75%.

The BSP has signaled further rate cuts this year.

HSBC expects the central bank to bring down the benchmark rate to 5% by the third quarter of 2025.

Source: Business World

Philippines may escape ‘middle-income trap’ by 2050

It may take more than two decades before the Philippines can escape the “middle-income trap,” Nomura Global Markets Research said, citing the need to implement key reforms to boost investment-led growth.

“The countries that continue to reap the benefits of the demographic dividend include Vietnam, Indonesia and the Philippines, and all have brighter prospects than Thailand on breaking free of the trap,” it said in a report.

“However, this is still a long-term challenge. Assuming strong potential growth is sustained (i.e., 5% for Indonesia and 6% for the Philippines and Vietnam), these countries may escape the trap by 2050.”

The Philippines remained a lower middle-income country despite an increase in its gross national income (GNI) per capita to $4,230 in 2023 from $3,950 in 2022, according to the World Bank’s latest income classification data.

To become an upper middle-income country, the Philippines would need a GNI per capita of $4,516 to $14,005.

The Philippines has been stuck in the lower middle-income bracket since 1987, according to the latest available data.

In its report, Nomura created a Middle-Income Trap Escape Index (MITEI), which assesses the ability of countries to break free from the middle-income trap.

Countries are ranked on a scale where a score of 100 is the sample average, with anything higher or lower than 100 indicating an above or below average score, respectively.

The Philippines garnered a score of 85 under the MITEI Index, the lowest among Southeast Asia. It scored lower than Malaysia (103), Thailand (98), Vietnam (94) and Indonesia (87).

Nomura said the Philippines is considered in a “tight spot,” which is defined as “traditionally poorer countries that continue to trail middle-income league tables.”

“Vietnam, Indonesia and the Philippines are catching up fast, propelled by strong investment growth, but breaking free of the trap is a long-term challenge.”

There is a need to implement structural reforms to drive investment growth through infusion and innovation, it added.

The Marcos administration is targeting to reach upper middle-income status by this year. The World Bank usually releases the income classification data in July.

Nomura said “business-as-usual” growth is not enough to escape the middle-income trap.

“In the Philippines, the government’s continued push for infrastructure investment will be supportive of medium-term growth,” it said.

The government is targeting 6-8% economic growth from this year until 2028. It has also committed 5-6% of gross domestic product on infrastructure annually.

However, Nomura noted that increased geopolitical tensions, particularly between the Philippines and China, could hinder foreign direct investment from entering the country.

“The underperformance during the latest supply-chain reconfiguration could therefore limit the boost to investment relative to peers,” it added.

Nomura said the process of graduating to a higher income class will be a long and challenging process.

“To escape the middle-income trap, a country cannot continue to rely on cheap labor and rapid urbanization. The move from investment-led growth to innovation-led growth, however, is complicated,” it said.

“It needs the combination of policies to attract and adopt foreign technologies, an adequately skilled workforce, increases in human capital and more deep-rooted reforms of the economic and business climate.”

Adapting technological innovations such as generative artificial intelligence will also be critical, it added

Source: Business World