Growth may fall below 6% in 2025

Philippine economic growth could fall below 6% in 2025 amid a “gentle” recovery in domestic demand and expectations of a widening trade deficit, Bank of America (BofA) said. 

BofA Securities economist for the Philippines Jojo Gonzales said they forecast Philippine gross domestic product (GDP) to grow by 5.9% in 2025.

This would narrowly miss the government’s revised 6-8% growth target next year.

The economy expanded by a slower-than-expected 5.2% in the third quarter, its weakest growth in five quarters.

In the nine-month period, GDP growth averaged 5.8%, slower than the 6% print a year ago.

Earlier this month, the Development Budget Coordination Committee tweaked its economic growth targets to account for “evolving domestic and global uncertainties.”

“While we expect a gentle recovery in private consumption and investments over the next year, the growth in government spending is likely to be muted, and a wider net trade deficit is anticipated,” Mr. Gonzales told BusinessWorld in an e-mail.

In the third quarter, growth in government spending slowed to 5% from 11.9% in the previous quarter.

Latest data from the Philippine Statistics Authority (PSA) showed that the country’s trade deficit ballooned to $5.8 billion in October, the widest gap in over two years.

Meanwhile, BofA said it expects inflation to average 3% next year, well within the central bank’s 2-4% target.

The Bangko Sentral ng Pilipinas (BSP) expects inflation to average 3.3% in 2025. The central bank said that risks to the inflation outlook for next year remain tilted to the upside.

Headline inflation averaged 3.2% in the 11-month period, according to latest data from the PSA.

“A weaker peso remains a risk to this forecast, though softer oil prices will likely provide a cushion to negate the impact of the weaker currency,” Mr. Gonzales said.

BofA expects the dollar strength to persist next year, with the peso potentially breaching the P61 mark.

“The US dollar will remain stronger in 2025, and our end-2025 forecast is P61,” Mr. Gonzales said.

So far this year, the peso has hit a record-low P59-per-dollar level thrice.

BSP Governor Eli M. Remolona, Jr. earlier said they are watching the peso closely and have been a bit more active in the markets than usual.

The BSP had to intervene in small amounts in the past few months amid the stronger dollar after Donald J. Trump won as US President.

Meanwhile, BofA estimates that the central bank will deliver up to 75 basis points (bps) worth of rate cuts next year.

“This will bring down the policy rate to 5% (by end-2025),” Mr. Gonzales said.

Last week, the Monetary Board reduced borrowing costs by 25 bps at its final policy review of the year, bringing the key rate to 5.75%.

The central bank has slashed rates by a total of 75 bps this year since it began its easing cycle in August.

Mr. Remolona earlier said delivering 100 bps worth of rate cuts next year might be “too much.”

The central bank will likely keep reducing rates in “baby steps” as it is still carefully monitoring upside risks to inflation, the BSP chief added.

“We also expect the Fed rate to settle at 4% — one cut in December and two cuts in the first half of 2025,” Mr. Gonzales added.

The Fed continued cuts in December after a period of aggressive rate hikes but signaled fewer cuts in 2025. Investors are now focused on how gradually the US central bank would cut rates next year, Reuters reported.

While a benign US inflation reading on Friday eased some concerns about the pace of cuts next year, markets are still pricing in just about 35 bps worth of easing for 2025.

US investors are preparing for a swathe of changes in 2025 — from tariffs and deregulation to tax policy — that will ripple through markets as Mr. Trump returns to the White House in January.

Source: Business World

PH growth seen slowing to 2026

Philippine economic growth could fall well below target this year and keep slowing in the next two years, a United Kingdom-based research consultancy said, primarily due to likely constraints to consumption.

Pantheon Macroeconomics, in an outlook for emerging Asian economies for the first half of 2025, said the country's gross domestic product (GDP) growth was likely to average 5.4 percent in 2024, down from 5.5 percent a year earlier and the lowest since 2020's 9.5-percent plunge.

That contraction was due to the impact of the Covid-19 pandemic and Pantheon said that efforts to reduce the debt burden incurred to prop up the economy, along with high interest rates, would weigh on government and private sector spending.

"Domestic-demand driven India and the Philippines will remain hampered by incomplete post-Covid fiscal consolidation and historically-tight monetary policy," the consultancy said.

"Surveys show that a slowing rebuild of household savings in the Philippines and cost-of-living crisis damage cushioned the slump in consumption growth this year, albeit at the likely expense of delaying a real recovery in GDP growth this year," it also said.

Both India and the Philippines, along with Indonesia, are among the emerging Asian economies expected to post growth slowdowns, but the rest — Thailand, Vietnam, Singapore, Malaysia and Taiwan — were forecast to perform better than last year.

While the Philippines will see growth ease, the expansion will still be among the highest in the group, next only to India's 67.8 percent and Vietnam's 6.7 percent.

Improvements, however, are not expected for the following two years with GDP growth forecast to slow further to 5.2 percent in 2025 and 4.8 percent in 2026.

All three forecasts fall below the government's recently-revised 6.0-6.5 percent and 6.0-8.0 percent targets for this year and 2025-2028, respectively.

On a bright note, Pantheon said the Philippines, India and Indonesia, given their domestic demand-driven economies, offered "potential refuge" should a trade war erupt if US President-elect Donald Trump pushes through with threats to raise tariffs on all US imports.

The country's growth was a lower-than-expected 5.2 percent in the third quarter as a series of storms affected agriculture output and government infrastructure projects. Year to date, the expansion remains below target at 5.8 percent.

Many observers have lowered their 2024 forecasts for the Philippines, including the World Bank that this week trimmed its outlook for the year to 5.9 percent from 6.0 percent and the Asean+3 Macroeconomic Research Office, which earlier this month lowered its 2024 projection to 5.8 percent from 6.1 percent.

An exception would be the Asian Development Bank, which on Wednesday said that it still expected the country to grow by a within-target 6.0 percent this year.

Pantheon Macroeconomics said the Bangko Sentral ng Pilipinas would continue to ease policy given the growth pressures, with the target reverse repurchase rate likely to fall to 4.75 percent by the end of 2025.

The central bank's benchmark rate currently stands at 6.0 percent following the two 25-basis-point cuts by the policymaking Monetary Board in August and September.

Pantheon expects monetary authorities to implement another 25-bps cut during their final policy meeting for the year on Dec. 19.

Source: Manila Times

ADB keeps PHL growth forecasts for 2024, 2025

The Asian Development Bank (ADB) has kept its Philippine economic growth forecasts for this year and 2025, with expansion expected to be driven by easing inflation and lower interest rates.

Philippine gross domestic product (GDP) is expected to expand by 6% this year and 6.2% in 2025, the ADB said in its December 2024 Asian Development Outlook report, unchanged from its September forecasts.

Both projections are within the government’s revised GDP growth targets of 6%-6.5% for 2024 and 6%-8% for 2025.

“Household consumption and investment continue to drive the economy with both rising faster in the third quarter. Moderating inflation and monetary policy easing should continue to support growth,” the multilateral lender said in a report on Wednesday.

“On the supply side, buoyant services sector, construction, and manufacturing are contributing to overall growth,” the ADB said.

Services will remain a major growth driver for the Philippines, “with retail trade, tourism, and information technology–business process outsourcing as major contributors,” it added.

“Public infrastructure projects continue to lift growth, along with brisk private construction,” the ADB said.

It expects the Philippines to be the second-fastest growing economy in Southeast Asia this year, behind Vietnam with 6.4% and ahead of Indonesia (5%), Malaysia (5%), Singapore (3.5%), and Thailand (2.6%).

“While Vietnam sees rising foreign investment, other Southeast Asian economies like Indonesia and the Philippines are on track to meet previous growth forecasts,” the ADB said.

“However, geopolitical tensions, trade fragmentation, and severe weather events—such as Typhoon Yagi and Tropical Storm Trami — pose risks to growth, particularly in agriculture and infrastructure,” it added.

A series of storms hit the Philippines in November, resulting in about P10 billion worth of farm damage, according to the Department of Agriculture.

The World Bank on Tuesday trimmed its GDP growth projection for the Philippines to 5.9%, from 6%, reflecting the impact of typhoons.

At the same time, the ADB cut its inflation forecast for the Philippines this year to 3.6% from 3.3%. It kept its inflation projection at 3.2% for 2025.

“Inflation is expected to remain within the central bank’s 2% to 4% target, providing scope for further monetary policy easing,” it said.

Since August, the Bangko Sentral ng Pilipinas has cut rates by 50 basis points, bringing the benchmark rate to 6%.

The Monetary Board is set to hold its final policy-setting meeting of the year on Dec. 19.

US POLICY RISKS

Meanwhile, developing Asia is likely to grow more slowly than previously thought this year and next, and the outlook could worsen if President-elect Donald J. Trump makes swift changes to US trade policy, the ADB said.

Developing Asia, which includes 46 Asia-Pacific countries stretching from Georgia to Samoa — and excludes Japan, Australia and New Zealand — is projected to grow 4.9% this year and 4.8% next year, slightly lower than the ADB’s forecasts of 5% and 4.9% in September.

The downgraded growth estimates reflect lackluster economic performance in some economies in the third quarter and a weaker outlook for consumption, the bank said.

Growth forecasts for China remain unchanged at 4.8% for 2024 and 4.5% for 2025, but the ADB lowered its projections for India to 6.5% for 2024 from 7% previously, and to 7% for next year from 7.2%.

“Changes to US trade, fiscal, and immigration policies could dent growth and boost inflation in developing Asia,” the ADB said in its report, though it noted most effects were likely to manifest beyond the 2024-2025 forecast horizon.   

Mr. Trump, who takes office on Jan. 20, has threatened to impose tariffs in excess of 60% on US imports of Chinese goods, crackdown on illegal migrants, and extend tax cuts.

“Downside risks persist and include faster and larger US policy shifts than currently envisioned, a worsening of geopolitical tensions, and an even weaker PRC (People’s Republic of China) property market,” the ADB said.

It lowered its inflation forecasts for 2024 and 2025 to 2.7% and 2.6%, respectively, from 2.8% and 2.9%, due to softening global commodity prices.

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Source: Business World and ADB