Stronger 2025 growth expected

Robust household spending, low unemployment and election-related economic activity are expected to bolster the country's economic growth, potentially hitting the official target.

Bank of the Philippine Islands (BPI) expects a 6.3-percent economic expansion for 2025, with household consumption remaining its biggest driver.

The government is aiming for 6.0- to 8.0-percent annual growth this year, wider than the 6.0 to 6.5 percent for 2024 that most analysts expect to have been missed.

"The factors sustaining consumption over the past decade, such as remittance inflows, have remained in place despite the economic slowdown in major economies," BPI lead economist Emilio Neri said.

"With aging populations abroad driving the demand for labor, the impact of headwinds on remittances like trade barriers and anti-immigration sentiment will likely be limited," he added.

Low unemployment, particularly in the services sector, is also expected to sustain household income growth and expand the middle class.

While concerns about job displacement due to artificial intelligence (AI) persist, Neri said there would be minimal disruption as adoption of the technology remained in its infancy.

AI, he added, could potentially enhance labor productivity for companies that leverage the technology effectively.

Meanwhile, "the economy also stands to benefit from the recent reduction in interest rates and provision of additional liquidity through the reserve requirement ratio."

"Private sector spending in construction activities has not yet returned to pre-pandemic levels, but lower interest rates may fast track its recovery," Neri said.

The Bangko Sentral ng Pilipinas (BSP), which lowered its policy rate by 75 basis points (bps) to 5.75 percent last year, was forecast to cut by 50 bps this year.

The central bank was earlier expected to cut by as much as 100 bps amid a favorable inflation outlook, but concerns over protectionist threats made by US President-elect Donald Trump have prompted analysts to revise their outlooks.

Neri said that global uncertainties, particularly the policy direction of the US Federal Reserve (Fed) under a second Trump administration, could influence the peso's performance and limit the extent of monetary easing.

"Rate cuts in the first half of the year appear feasible, but the latter half may bring challenges as the Federal Reserve could shift its policy stance in response to President Trump's policies," he said.

Neri added that "depreciation pressure on the peso may persist as markets continue to assess the potential impact of Republican policies on inflation and monetary policy."

The Fed's anticipated 50-bp rate cut this year, contingent on US economic data, could also play a role in shaping currency trends.

Source: Manila Times

PH economy to weather global headwinds

Moody's Ratings said the Philippine economy is expected to weather global uncertainties this year, with growth likely to hit the government's target.

"Rising employment and higher remittance inflows will support household spending," Moody's said in a commentary.

"Public investment will also buttress growth, while reforms, including market liberalization, and foreign investment will spur private-sector investment," it added.

Moody's forecasts a 6.1-percent economic expansion for 2025, within the government's revised 6.0—to 8.0-percent annual goal up to 2028.

Many analysts see gross domestic product (GDP) growth as falling below the 6.0—to 6.5-percent target last year amid a slowdown in government spending and the impact of a series of storms on agriculture output and inflation.

Moody's noted that the Philippines was at risk from climate threats, which could affect the country's fiscal standing.

"In 2025, the emergence of a La Niña episode and the associated risk of more extreme weather events could add to emergency fiscal spending," it added.

The debt watcher also raised concerns about the country's debt affordability and said that general government interest payments were projected to rise to approximately 13.5 percent of revenues through 2025, a significant increase compared to pre-pandemic levels.

Elevated interest rates, which could offset gains from revenue mobilization measures, have worsened the situation.

Source: Manila Times

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