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

Inflation accelerated for a third straight month in December

Inflation accelerated for a third straight month in December amid a faster rise in food, utility and transport prices, the Philippine Statistics Authority (PSA) said.

Preliminary data from the PSA showed the consumer price index (CPI) rose to 2.9% year on year in December from 2.5% in November but was slower than 3.9% a year earlier.

It also settled within the 2.3%-3.1% forecast for the month given by the Bangko Sentral ng Pilipinas (BSP).

December brought 2024 inflation to 3.2%, in line with the BSP’s forecast. This was the first time that full-year inflation fell within the central bank’s 2-4% target since 2021, when inflation averaged 3.9%. It was also the slowest since 2.4% in 2020.

“On balance, the within-target inflation outlook and well-anchored inflation expectations continue to support the BSP’s shift toward a less restrictive monetary policy. Nonetheless, the monetary authority will continue to closely monitor the emerging upside risks to inflation, notably geopolitical factors,” the central bank said in a statement.

PSA data showed core inflation, which discounts volatile prices of food and fuel, stood at 2.8% in December — faster than the previous month’s 2.5% but slower than the 4.4% a year ago.

For the entire year, core inflation averaged 3%, easing from 6.6% in 2023.

National Statistician Claire Dennis S. Mapa said December inflation was mainly due to the housing, water, electricity, gas and other fuels index, which accelerated to 2.9% from 1.9% a month earlier and 1.5% in the previous year.

The index accounted for more than half or a 52.9% share of the uptrend in inflation during the month.

One of the main drivers was electricity, which jumped to 1.6% in December from the 2.5% contraction in November and 7.8% decline a year ago.

In December, Manila Electric Co. (Meralco) raised the overall rate by P0.1048 per kilowatt-hour (kWh) to P11.9617 per kWh from P11.8569 in November.

The PSA also cited faster inflation in rentals at 2.4% from 2.2% a month ago and liquefied petroleum gas or LPG at 7.8% from 6.7%.

The PSA also cited transport as a main source of faster December inflation.

Transport inflation picked up to 0.9%, a reversal of the 1.2% drop in November and faster than the 0.4% clip a year earlier.

Mr. Mapa said the rise in transport inflation was due to the slower deceleration of prices of gasoline (-2.4% from -8%) and diesel (-2.9% from -9.4%).

In December, pump price adjustments stood at a net increase of P1.40 a liter for gasoline and P1.45 a liter for diesel, while kerosene prices had a net decrease of P0.80 a liter.

Passenger sea transport jumped to 71.9% in December from 17.1% in November. Mr. Mapa said this was due to seasonal factors amid the holidays.

RICE PRICES

Meanwhile, the heavily weighted food and nonalcoholic beverage index remained steady at 3.4% during the month. Food inflation was likewise steady at 3.5%.

“The good news is that the inflation rate of rice is easing. In fact, there’s even an expectation that inflation for rice will turn negative this January,” Mr. Mapa added.

Rice inflation slowed to 0.8% from 5.1% in November and 19.6% a year prior. Rice is typically the biggest contributor to overall inflation but has recently been on a downtrend since the government slashed tariffs on rice imports in July.

However, faster increases were recorded for vegetables, tubers, plantains, cooking bananas and pulses, which climbed to 14.2% from 5.9% a month ago.

Mr. Mapa said the price increase of tomatoes soared to 120.8% in December from 31.3% in November. It also accounted for 0.3 percentage point (ppt) of overall inflation.

The average price of tomatoes stood at P147.23 per kilo in December, rising from P84.64 per kilo year ago.

Mr. Mapa said higher vegetable prices could be partly attributed to storm damage in the past few months.

“That of course has an effect. It is not unique to this December, every time there’s a typhoon, it’s the prices of vegetables that really spike. Add to that the high demand (for vegetables) over the holidays,” he added.

Data from the PSA showed inflation for the bottom 30% of income households eased to 2.5% from 2.9% a month prior and 5% in the previous year. Year to date, inflation for the bottom 30% averaged 4.2%.

Inflation in the National Capital Region (NCR) accelerated to 3.1% in December from the 2.2% print in November and 3.5% a year ago. For 2024, inflation in NCR averaged 2.6%.

Outside NCR, consumer prices quickened to 2.9% from 2.6% a month earlier and 4% in the year prior, bringing the average to 3.4% in 2024.

“We are seeing the fruit of our efforts in bringing down inflation within the government’s target range of 2-4%,” BSP Governor Eli M. Remolona, Jr. said in a statement.

National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said the full-year average inflation in 2024 is a “significant improvement” from 2023.

“Despite the risks we encountered throughout the year, our combined efforts to temper inflation have largely been successful. We will build upon this momentum as we commit to keep the inflation rate within our target range in 2025,” he added.

In a separate statement, the BSP said the latest inflation outturn is “consistent with the BSP’s assessment that inflation will remain anchored to the target range over the policy horizon.”

The BSP expects inflation to average 3.3% this year and 3.5% in 2026, both within the 2-4% target.

However, it said the balance of risks to the inflation outlook continues to lean to the upside, citing “potential upward adjustments in transport fares and electricity rates.”

“The impact of lower import tariffs on rice remains the main downside risk to inflation. Domestic demand is likely to remain firm but subdued. Private domestic spending is expected to be supported by easing inflation and improving labor market conditions,” the BSP said.

“However, downside risks in the external environment could materialize and temper economic activity and market sentiment,” it added.

Amid these risks, the BSP said “complacency is not an option.”

“Prices of certain commodities may rise due to supply-side factors like geopolitical tensions and adverse weather conditions,” it added.

WITHIN TARGET

Analysts still see inflation settling firmly within the 2-4% range.

“For now, we’re sticking to our below-consensus forecast for average annual inflation to fall further this year to 2.4% from 3.2% in 2024, though the risks to this projection are skewed to the upside,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said.

Chinabank Research in a note said bad weather poses a risk to food prices amid the expected La Niña this quarter.

“Still, barring unexpected shocks, we project inflation will remain within target going forward,” it added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said a “relatively benign” inflation print might still be seen up to early 2025, which would justify further policy easing.

Last year, the central bank delivered a total of 75 basis points (bps) worth of rate cuts, bringing the benchmark rate to 5.75% by yearend.

“Still, the BSP will likely continue to be vigilant of upside risks to prices. However, with inflation still expected to settle within target this year, we think the BSP has room to continue with its gradual pace of monetary policy easing,” Chinabank said.

It expects the BSP to deliver 75 bps of cuts this year to bring the policy rate to 5%.

The Monetary Board’s first policy review for the year is on Feb. 20.

Source: Business World

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