Moody’s unit sees Asia-Pacific growth sustained through 2025

Moody’s Analytics expects growth in Asia-Pacific economies, including the Philippines, to remain strong in 2024 and 2025, driven by improving trade, robust investment and sustained consumer spending.

In a report written by Steven Cochrane, chief APAC economist at Moody’s Analytics, the firm said the outlook for the region in 2025 is good, even though economic growth in China and India will likely slow over the coming year.

“Growth will accelerate in Southeast Asia, supported by trade, investment, consumption, generally stimulative fiscal policy, and, by early next year, easing monetary policy,” Cochrane said.

Moody’s Analytics has maintained its gross domestic product growth projection for the Philippines at 5.9 percent this year, slightly below the low end of the government’s six-to-seven-percent target.

The growth forecast for the Philippines for this year is the third highest in the region, after India (6.8 percent) and Vietnam (6.4 percent). This is followed by Indonesia (5.2 percent), Malaysia (5.1 percent) and China (4.8 percent).

Moody’s also kept its six percent forecast for 2025, which is also below the government’s target range of 6.5 to 7.5 percent but is still the third fastest growth in the region.

“The Philippines and Indonesia will not lag far behind Vietnam, but their economies are not as closely tied to the global economy. An aggressive push by both countries to improve their infrastructure will support high rates of growth,” Cochrane said.

Southeast Asia, particularly Malaysia and Vietnam, is benefiting from robust investment spending from local and international sources, he said.

Fiscal policy in the Philippines is also strongly focused on infrastructure development, which will continue to attract investors.

“But the actual execution of this policy has been uneven this past year,” he said. “The Philippines must stick to its plans and execute well.”

Geopolitical risks also add uncertainty to the outlook amid conflicts over the disputed West Philippine Sea and the current conflict in the Middle East. The outcome of the US November election will also impact the region.

“Should Donald Trump win the presidency, it would lead to higher tariffs on goods imported by the US from China and much of the rest of the world,” Cochrane said.

Higher tariffs on goods flowing into the US would hurt China and hit Asia’s small open economies such as Hong Kong and Singapore. Taiwan and Vietnam also face above-average risk.

“The less export-sensitive economies of Indonesia and the Philippines face much less risk in the Trump-election scenario,” he added.

The Philippine economy grew by 6.3 percent in the second quarter. This was faster than the 4.3 percent expansion in the second quarter of last year and the revised 5.8 percent growth in the first quarter of 2024.

Growth in the first half of the year stood at an average of six percent.

Source: Inquirer

Consumer spending still to fully recover

Consumer spending has yet to return to its pre-pandemic growth track amid sticky inflation and “smaller policy support” for households, according to Moody’s Analytics.

“Goods consumption trends have seen greater variation. In most economies in the region, it never surged above the pre-pandemic trend the way it did in the US,” Moody’s Senior Economist Stefan Angrick and Associate Economist Jeemin Bang said in a report.

“More recent data show (that) goods consumption is slowing in New Zealand, South Korea, the Philippines and Australia; sticky inflation and reduced policy support are weighing on household spending,” it added.

Inflation in the Philippines dropped to its lowest level at 2.4% in 2020 as the coronavirus pandemic dragged down consumer spending, accelerating to 6% last year amid price hikes and global headwinds.

In March, headline inflation accelerated for the second straight month to 3.7% amid rising food costs.

“Weak spending is driven by the persistence of high interest rate that is used to manage inflation due to supply-side constraints,” Oikonomia Advisory & Research, Inc. president and chief economist John Paolo R. Rivera said.

Last week, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. signaled the possibility of delayed rate cuts due to inflation risks.

The BSP kept its benchmark interest rate at 6.5% for a fourth straight meeting in April. The Monetary Board raised borrowing costs by 450 basis points from May 2022 to October 2023.

“To increase household spending, policies to enhance income-generating capacities of households must be given emphasis such as creating a conducive economy for investments that will create jobs,” Mr. Rivera said.

The government must also address supply-side constraints especially in agriculture to help ease inflation, he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said reduced tariffs on commodities and conditional cash transfer programs for the poor should help increase household spending.

“Goods typically make up a smaller share of private consumption than services, so weaker goods consumption won’t completely derail these economies as long as services consumption stays on course. But weaker goods spending is a headwind at a time when growth is already hard to come by,” according to the report.

The Philippines targets gross domestic product (GDP) of 6-7% target this year. They fell short of official growth expectations at 5.5% in 2023.

Within the region, Taiwan was the only Asia-Pacific country that enjoyed a rise in goods consumption due to the high demand for IT (information technology) goods.

Moody’s also noted that services spending in the Philippines and Thailand have yet to rebound from the pandemic, mainly due to the slow tourism recovery.

“Services spending in the Philippines and Thailand remain far below the pre-pandemic trend, reflecting a high degree of pandemic scarring on both economies,” the report said.

Services consumption is “almost back to normal” among high-income developed countries like South Korea, Taiwan, and Australia, but still lags in New Zealand and Japan.

Moody’s reported that the availability of vaccines, longer social distancing measures helped other countries recover earlier.

Mr. Ricafort said that state spending in tourism-related infrastructure, like airports, seaports, public transportation, and toll roads would bolster recovery in the sector and ensure growth in the services sector.

Source: Business World

PHL growth likely 2nd fastest in SE Asia

The Philippines is projected to be the second-fastest growing economy in Southeast Asia this year and in 2025 as domestic demand is expected to remain resilient, according to Moody’s Ratings.

“We have kept unchanged our 2024 and 2025 forecasts for the Philippines and Malaysia and also expect sequentially higher growth in both countries. Domestic demand remains the primary economic growth engine for the Philippines,” it said in a report.

Moody’s Ratings kept its forecast for gross domestic product (GDP) growth for the Philippines at 5.9% this year and 6% in 2025.

However, these projections fall short of the government’s growth targets of 6.5-7.5% for this year and 6.5-8% for next year.

At 5.9%, the Philippines has the second-fastest projected growth in Southeast Asia for 2024, after Vietnam (6%). It is ahead of Indonesia (5%), Malaysia (4.5%) and Thailand (2.8%).

For 2025, the Philippines is again expected to post the second-fastest growth behind Vietnam (6.5%) but ahead of Indonesia (5%), Malaysia (4.8%), and Thailand (3%).

Moody’s Ratings said that growth in domestic demand-driven countries like the Philippines is “increasing more than we previously expected.”

The economy grew by a weaker-than-expected 5.6% in 2023, slower than the 7.6% expansion in 2022 and short of the 6-7% government goal. 

Household consumption typically accounts for three-fourths of the Philippine economy. Last year, household spending expanded by 5.6%, much slower than 8.3% in 2022.

Meanwhile, Moody’s Ratings sees inflation averaging 3.8% this year, higher than the Bangko Sentral ng Pilipinas’ (BSP) 3.6% full-year forecast but within the 2-4% target.

For 2025, it sees inflation easing to 3.3%, a tad higher than the 3.2% central bank forecast.

“Inflation picked up in February in most Asian economies on higher food prices, with the exception of Malaysia,” Moody’s Ratings said.

Inflation picked up to 3.4% in February, the first time it quickened in five months.

However, rice prices may continue to rise amid supply issues.

“Rice inflation continues to accelerate with higher import prices and the persistent lack of effective supply-side responses. But the risk is limited of food inflation broadening to core inflation because we do not expect a continued increase in food prices,” it added.

In February, rice inflation surged to 23.7% or its fastest pace since the 24.6% recorded in the same month in 2009.

Meanwhile, Moody’s Ratings said that central banks in Asia are unlikely to begin policy easing before the US Federal Reserve.

“Asian central banks are maintaining tight monetary policies to preserve financial and foreign exchange stability, and appear unwilling to start cutting policy rates before the Fed,” it said.

The BSP kept its benchmark rate steady at a near 17-year high of 6.5% for a third straight meeting in February. It raised borrowing costs by 450 basis points (bps) from May 2022 to October 2023.

The Monetary Board will hold its next policy meeting on April 8.

Markets expect the BSP to begin cutting rates by midyear, in step with the Fed.

However, BSP Governor Eli M. Remolona, Jr. has said that while they “closely” watch the US central bank’s moves, its own monetary decisions are not dependent on the Fed.

“The resulting pressures on growth, leveraged economic sectors, or both, could eventually push Asian central banks to begin cutting rates even in a Fed-on-hold scenario and letting foreign exchange rates weaken in the process,” Moody’s Ratings said.

“There could also be implications on capital inflows and outflows. Such policy pivots could be delayed through calibrated fiscal support or other macroprudential measures, however,” it added.

Source: Business World