The Philippines to achieve upper-middle-income status in 2025

The Philippines has a good chance of attaining upper-middle-income status next year if economic growth targets are attained, National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan said.

"We have a good chance of attaining upper middle-income country (UMIC) status in 2025," Balisacan said during the year-end briefing held at the NEDA office in Mandaluyong City.

The World Bank defines UMIC economies as those with gross national income (GNI) per capita ranging between $4,516 and $14,005 for the fiscal year 2025.

GNI per capita measures the economic output per citizen, encompassing both domestic and international partners.

As of end-2023, the Philippines' GNI per capita was at $4,230.

To attain the UMIC status, Balisacan said the country needs to achieve the growth target this year and maintain the growth trajectory in 2025.

He also cited the need for the peso not to weaken significantly relative to the currencies of the country's trading partners.

Balisacan is optimistic that the 6-percent lower end of the government's growth target will still be achieved this year.

Philippine economic growth averaged 5.8 percent for the first three quarters of 2024.

"We remain optimistic about the fourth-quarter economic performance. Holiday spending, more stable commodity prices, and a robust remittance inflow and labor market give us confidence that our 6.0 to 7.0 percent growth target is still achievable," said Balisacan.

Balisacan, however, noted that the series of typhoons that hit the country in the past months affected the agriculture sector.

"On the other hand, the positive forces could outweigh those developments in the agriculture sector," he said.

Balisacan said the Bangko Sentral ng Pilipinas' decision to cut policy rates by a cumulative 50 basis points and reduce reserve requirements are expected to spur growth in private spending, particularly on big-ticket consumer items and investments in capital-intensive infrastructure in the coming quarters.

"This move will support economic growth by making borrowing more affordable for businesses and consumers," he said.

Easing inflation, continuing robust labor market and the continued growth in remittances, he said, will also help boost economic growth.

Balisacan said the government's goal to lower nationwide poverty from 15.5 percent in 2023 to a single-digit rate by 2028 also remains achievable.

"Maintaining low and stable prices is critical to reducing poverty and making economic growth more inclusive," he said.

"We will continue to enhance our social protection programs, particularly through digital solutions enabled by the National ID, to protect our gains and ensure that no one is left behind," Balisacan added.

Balisacan, meanwhile, said that external risks to growth include geopolitical tensions, big-power rivalry and uncertainty arising from the political-economy dynamics within and between the country's major trading partners such as the United States.

"With the upcoming assumption of United States President-elect Trump, we maintain that the Philippines is ready to work with any economy and to adjust our policies accordingly, as we have continuously built solid and close relationships with the US and other countries," he said.

Source: Manila Times

Ratings upgrade possible as S&P raises PH outlook

S&P Global Ratings affirmed the Philippines’ investment grade rating on Tuesday and raised its outlook to “positive” from “stable” to reflect the economy’s strong growth potential amid improved institutional strength on the back of “effective policy making.”

The debt watcher on Tuesday affirmed its “BBB+” long-term credit rating for the country, which is a notch below the “A” level grade targeted by the government. It also kept its “A-2” short-term rating for the Philippines.

Still, S&P Global raised its rating outlook to “positive” from “stable.” A positive outlook means the Philippines’ credit rating could be raised over the next two years if improvements are sustained.

“Our improved institutional assessment drives our positive outlook on the Philippines. We believe the strengthening of the country’s institutional settings, which had contributed to a significant enhancement in the sovereign’s credit metrics over the past decade, will continue,” S&P Global said in a statement. “This is demonstrated by the strong economic recovery in the last two years, and ongoing reforms to support business and investing conditions.”

“This improvement could lead to stronger sovereign support over the next 12-24 months if the Philippines’ economy maintains its external strength, healthy growth rates, and that fiscal performance will strengthen.”

Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said the debt watcher’s upgraded outlook “reflects the work the government has done to improve the economic, fiscal, and monetary environment, enabling strong growth to continue.”

Finance Secretary Ralph G. Recto likewise said this “reaffirms our stable economic and political environment and that we are on track to achieve a growth-enhancing fiscal consolidation.”

“We have a comprehensive ‘Road to A’ initiative to ensure that we secure more upgrades soon,” he added.

S&P Global said the Philippines’ sovereign rating reflects the economy’s “above-average growth potential.”

“This strength underpins constructive development outcomes. The ratings also benefit from the country’s strong external position,” it added.

For the first nine months of the year, the Philippine economy expanded by 5.8%, slightly below the government’s goal of 6-7% gross domestic product (GDP) growth this year.

The government is targeting 6.5-7.5% GDP growth next year and 6.5-8% growth from 2026 to 2028.

S&P Global expects Philippine GDP growth to average 5.5% this year, driven by exports and easing inflationary pressures.

“Ongoing reform on the business, investment, and tax fronts should benefit growth over the next three to four years.”

The Philippine economy will likely grow at an average of 6.2% a year over the next three years, it added.

“Solid household and corporate balance sheets, and sizable remittance inflows underpin the Philippine economy’s positive medium-term trajectory,” S&P Global said.

“Ongoing efforts to address infrastructure gaps, and improvements in the business climate through regulatory and tax reforms should also support growth in economic productivity.”

FISCAL REFORMS

The government’s fiscal reforms have also boosted the economic outlook, the credit rater said.

“We believe that effective policy making in the Philippines has delivered structural improvements to the country’s credit metrics. Fiscal reforms have raised government revenue as a share of GDP and helped to fund public investment. Improved infrastructure and policy environment have helped to keep economic growth strong in much of the past decade,” it said.

“The government’s fiscal and debt settings had deteriorated due to the economic fallout from the pandemic and the associated extraordinary policy responses. Fiscal buffers built through a long record of prudence before the pandemic thinned, but consolidation has begun with the economic recovery well on track.

The Philippines’ low GDP per capita relative to other investment-grade sovereigns temper these strengths,” it added.

Latest data from the Treasury showed that the budget deficit narrowed by 1.35% to P970.2 billion in the first nine months.

The government is seeking to bring the deficit-to-GDP ratio to 5.6% this year and further down to 3.7% by 2028.

“The Philippine government has generally enacted effective and prudent fiscal policies over the past decade. Improvements to the quality of expenditure, manageable fiscal deficits, and relatively low general government indebtedness testify to this,” S&P Global said.

However, the credit rater said restoring fiscal and debt settings to pre-pandemic levels will be challenging and likely be a gradual process.

“The ongoing economic recovery in the Philippines should facilitate a reduction in the general government deficit and a further stabilization of the debt burden,” it said. “It will, however, take several years for fiscal balances to recover to pre-pandemic levels given the eroded fiscal headroom.”

S&P Global added that it expects the country’s net general government debt to gradually decline amid continued fiscal consolidation.

Moving forward, the debt watcher said it could upgrade the Philippines’ credit rating if the current account deficit and fiscal position remain well-managed.

“We may raise the ratings if our expectations of current account deficits tapering over the forecast period are realized such that buffers in the Philippines’ narrow net external asset position are maintained and if the government achieves more rapid fiscal consolidation,” it said.

S&P Global expects the country’s current account deficit to persist but at “modest levels.”

The BSP estimates the current account deficit to reach $6.8 billion this year, equivalent to 1.5% of GDP. In the first half of the year, the country’s current account deficit stood at $7.1 billion, accounting for 3.2% of economic output.

On the other hand, the rating outlook could be revised down to “stable” if economic recovery slows down or if the government’s fiscal and debt positions deteriorate.

“If persistently large current account deficits lead to a structural weakening of the Philippines’ external balance sheet, we would also revise the outlook to stable,” S&P Global added.

Source: Business World

Philippine Q3 growth slows to its weakest in more than a year

This year's economic growth target will likely be missed after a slower-than-expected third quarter that has also put pressure on monetary authorities to keep lowering interest rates, analysts said.

Subdued household and government spending limited gross domestic product (GDP) growth to just 5.2 percent in July-September, markedly down from the second quarter's 6.4 percent and below the 5.7-percent median in a Manila Times poll of economists.

This brought year-to-date growth to 5.8 percent, below the 2024 goal of 6.0-7.0 percent.

Source: Business World

Household consumption — the top contributor to GDP growth — edged up to 5.11 percent from 4.7 percent in the prior quarter but remained below levels seen in the last two years, while government spending slowed by more than half to 5.0 percent from 11.9 percent.

"While the worst is probably over for private consumption in the Philippines, we doubt this pace of consumption growth is sustainable," Capital Economics said as it retained a full-year GDP growth forecast of 5.5 percent.

It added that a continued boost from lower inflation and looser monetary policy should support consumption, but "expect growth in remittances to slow amid weaker global growth which will act as a headwind."

Capital Economics also noted that investment growth remained muted and that "the level of fixed investment remains below pre-pandemic levels."

The sharp slowdown in government spending, it continued, would lead to further fiscal tightening next year.

Rate cut justification

Bank of the Philippine Islands senior economist Emilio Neri, meanwhile, said the prospect of slower growth could warrant the Bangko Sentral ng Pilipinas (BSP) continuing with an easing cycle despite a weakening peso.

"The BSP may use the recent GDP data as justification for a rate cut in December," he added. "However, external developments may also prevent them from cutting."

Neri noted that uncertainties abroad had intensified following the election victory of Donald Trump, causing more peso volatility. The central bank, he said, "may find it more appropriate to keep rates steady if the peso weakens sharply in the coming weeks."

The currency, which has weakened to the P58-to-the-dollar level in recent weeks as the dollar strengthened in anticipation of a Trump win, fell by 6.9 centavos on Thursday to P58.73 against the greenback.

ANZ Research, meanwhile, also said that slower economic growth would likely prompt the central bank to keep cutting interest rates.

"Given the benign inflation outlook over the near term and the softer GDP growth in Q3 2024, we think the BSP will cut rates by another 25 bps (basis points) in December 2024," it said.

Bank of America (BofA), for its part, said that it had expected the pickup in private consumption and the slowdown in government spending but "underestimated the export slowdown and import pickup."

Exports contracted by 1.0 percent in the third quarter, reversing from a 4.2-percent expansion three months earlier, while imports growth improved to 6.4 percent from 5.3 percent.

BofA maintained its 2024 Philippine growth forecast at 5.9 percent, forecasting a fourth-quarter improvement in private spending and still-subdued government consumption.

The third-quarter slowdown will reinforce the possibility of a 25-basis-point cut in December, BofA continued.

"However, our expectation of a further 100-bp cut in the policy rate ... [next year] may be challenged by the fluid conditions in the US that point to a stronger US dollar, increased tariffs on trade, more restrictions on immigration — some of which complicate monetary policy."

The central bank's policy rate currently stands at 6.0 percent following two 25-basis-point cuts in August and October.

The BSP's policymaking Monetary Board has only one meeting left this year in December. Another 25-basis-point cut will bring the benchmark rate to 5.75 percent.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said that BSP rate cuts and expected reductions by the US Federal Reserve would help sustain economic activity and buoy growth.

Philippine growth, he added, will still be among the fastest growing in the region.

Biz group upbeat

The Philippine Chamber of Commerce and Industry (PCCI), for its part, said it was optimistic that growth would pick up in the last three months of the year due to holiday spending.

"Primarily it's the seasonality of [the] last quarter," PCCI Chairman George Barcelon told reporters, "definitely there will be more economic activities."

"Definitely in the last quarter, moving forward, it's (GDP growth) going to be beyond 6 percent," he claimed.

The Makati Business Club (MBC), meanwhile, called on the government to increase its support for the agriculture sector, which continued to contract in the third quarter.

The 2.8-percent decline, worse than the -2.3 percent posted in April-June, was blamed on strong typhoons that had caused billions of pesos in farm damage and the lingering effects of the El Niño weather pattern.

Ahead of the release of the GDP data, the Philippine Statistics Authority reported that the value of farm output had fallen by 3.7 percent in the third quarter, worsening from the April-June's -3.2 percent and -0.2 percent recorded a year ago.

The MBC noted the Philippines was among the world's most climate-vulnerable countries with the agriculture sector often affected by typhoons, droughts and floods.

"This makes sustainable farming practices and climate adaptation crucial for food security," it said.

Source: Manila Times