BPI sees Philippine economy growing at 5% level

Bank of the Philippine Islands (BPI) expects the economy to return to 5% growth next year, calling the third-quarter reading of 4% an anomaly and arguing that the government could eventually get a handle on the issues holding spending back.

“Next year, I think the economy should still grow about 5%. I think the Q3 number might be a one-off. It might spill a little bit to Q4 as the government tries to understand its spending. But I think as we roll into next year, we should hopefully get back to the 5% handle,” BPI President and Chief Executive Officer Teodoro K. Limcaoco told reporters.

Growth of 5% would be lower than the government’s official 6-7% gross domestic product (GDP) growth target for 2026.

Mr. Limcaoco said the third-quarter GDP reading was the result of the government having to rein in spending as it grappled with corruption in public works, particularly flood control projects.

“I guess it’s a little bit disappointing but not quite unexpected. I think the magnitude of the drop was a little surprising to everyone. But we (thought) that Q3 GDP would be slightly lower. We realized that with the current concerns about flood control, that government spending had been, I guess, reduced as they try to get things in order,” he said.

He added that bad weather dampened consumer spending during the period.

“Anecdotally, we’re hearing from our retail clients that September was a pretty weak month, primarily because of the weather,” Mr. Limcaoco said.

GDP grew 4% in the three months to September, the weakest in over four years and well below the 5.5% expansion in the second quarter and the 5.2% clip from a year earlier.

In the first nine months, GDP averaged 5%, well behind the pace of the government’s 5.5%-6.5% full-year target.

Mr. Limcaoco said the muted third quarter growth reading, paired with controlled inflation, points to a rate cut by the Bangko Sentral ng Pilipinas (BSP) in December.

However, he noted the central bank still needs to weigh how the Federal Reserve’s own easing cycle affects the peso.

“Obviously, some economists are saying that with the 4% Q3 growth, that there’s room for the BSP to cut. I think the BSP will have to take a look also at what the Fed is doing because they’ve got to watch out. Otherwise, there (could be an impact on) the currency,” he said.

The BSP last month reduced benchmark rates by 25 bps for a fourth straight meeting, bringing the policy rate to 4.75%. Since starting its easing cycle in August last year, the Monetary Board has cut rates by a total of 175 bps.

BSP Governor Eli M. Remolona, Jr. has said that another cut is possible at the central bank’s Dec. 11 meeting and further into next year amid a softening growth outlook.

Source: Business World

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