Philippines unlikely to hit yearly GDP target for the second time in a row

The Philippines may have difficulty achieving the upper end of the government’s 6-8% gross domestic product (GDP) growth target amid heightened global uncertainties this year.

"The country could hit 8% growth this year", Finance Secretary Ralph G. Recto

said, “6-6.5% [growth] is doable for 2025.”

Mr. Recto, however, said the outlook will depend on “inflation, interest rates, and strength of US dollar.”

The Philippine economy expanded by 5.6% last year, slightly faster than 5.5% in 2023 but fell short of the government’s revised 6-6.5% target.

The National Economic and Development Authority earlier said the GDP growth was hampered by extreme weather events, geopolitical tensions, and subdued global demand — which is now considered as the “new normal.”

Multilateral lenders World Bank and the Asian Development Bank project the Philippines to grow by 6.1% and 6.2% in 2025.

Ateneo School of Government Dean Philip Arnold “Randy” P. Tuaño said the Philippines will “face difficulty” meeting the 8% growth target.   

“It was relatively easy to achieve a 7% to 8% growth in the 2022-2023 period as we have been coming from a low-income base during the pandemic,” Mr. Tuaño said.   

“Even then, 5% to 6%, while a respectable rate of growth, would make it difficult to achieve significant growth in income among the middle class and vulnerable in the next few years,” he added. 

HSBC economist for ASEAN Aris D. Dacanay said that achieving an 8% growth rate is possible, but “a tall order.”

He cited global and domestic headwinds, including a sluggish Chinese economy, tariff risks, and climate-related impacts on the agricultural sector.

“This isn’t to say the Philippines won’t grow. Growing by 6.3%, we expect it to be one of Asia’s top performers in 2025 with the business process outsourcing sector (BPO), digitalization, and household consumption — sectors of the economy that are not subject to tariff risks — leading the charge,” he said.

In a note, Citi downgraded its 2025 GDP forecast to 5.9%, from 6% previously, after the weaker-than-expected growth momentum in 2024.

“Still, recent activity data such as income remittances  continue to suggest that domestic demand would remain well-supported. Commercial bank loans rose 11.1% year on year in November 2024 suggesting robust business activities and consumption growth…

Furthermore, continued monetary easing and more moderate inflation are also expected to support domestic demand expansion in 2025,” Citi said.

MORE INVESTMENTS NEEDED

Mr. Recto said the upper end of the government’s target “can only be achieved if private investments double or triple.”

Department of Budget and Management (DBM) Principal Economist Joselito “Jojit” R. Basilio said the economy is likely to post 6-7% growth this year, although the upper end of the target “remains doable under certain circumstances.”

“Aside from the government’s continued ramping up of spending on public construction, recently approved PPPs (public-private partnership) projects should complement the aggressive ‘Build Better More’ program,” he said.

“But there are conditions that can push the economy to do more and grow by 7% to 8% in 2025,” he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said hitting the upper end of the 2025 goal is a “long shot, realistically.”

“This would require more foreign and local investments, more tourists especially foreign, more merchandise exports that all generate more jobs and other economic opportunities that lead to higher per capita income,” he said.

To drive faster growth this year, Mr. Tuaño said the government should accelerate infrastructure projects and push regulatory reforms to boost investments, especially outside of the main urban centers.

The government should also invest in human resource development via education, healthcare, technological upgrading, and boost small businesses to drive growth, he said.

“Some potential opportunities for growth include stronger consumption driven by remittance growth and continuous expansion of services, and also the rebound of tourism,” Mr. Tuaño said.

Citi said continued policy easing by the Bangko Sentral ng Pilipinas will support GDP growth this year. It maintained its expectation for a 25-basis-point (bp) rate cut this month.

“We expect the BSP to cut again in June and August, skipping April, partly to ascertain a few outcomes, including the potential increase of US tariffs and possible impact on global trade and US dollar-Philippine peso, the Fed’s rate cut decisions, the Philippines’ midterm election campaigning’s potential positive impact on domestic demand (although investment may see some delays from the 45-day pre-election ban on project disbursement) etc,” Citi said.

The Monetary Board has cut benchmark borrowing costs by a total of 75 bps since it began its easing cycle in August 2024, bringing its key rate to 5.75%.

Mr. Basilio said private consumption is expected to recover strongly, increasing by 6% in 2025 due to stabilized inflation and lower interest rates.

“The domestic demand is also anticipated to shift from ‘being subdued’ to one of gaining its momentum,” he said.

Mr. Basilio also noted that agricultural output is anticipated to make “a strong rebound” this year.

However, Mr. Dacanay said relying on fiscal and monetary policy to boost growth will be difficult.

“The government is in the midst of consolidating its fiscal resources from the pandemic, while the Federal Reserve puts a floor under how much the Bangko Sentral ng Pilipinas can cut policy rates to boost growth,” Mr. Dacanay said.

RISKS TO THE OUTLOOK

Analysts cited geopolitical tensions and uncertainty as one of the downside risks to the Philippines’ economic outlook.

“Downside risks include geopolitical risks and uncertainties in global trade markets, considering further that goods export sector performance has been relatively anemic,” DBM’s Mr. Basilio said.

Mr. Tuaño said other downside risks include slower export growth due to “tariff escalation in the developed world… and natural disasters taking a toll on productive labor and capital.”

On the other hand, key upside risks include improved labor market conditions and election spending.

“For the current year, election spending is expected to result in increased economic activities, including advertising and campaign-related expenses in transport, hospitality, retail trade and others,” DBM’s Mr. Basilio said.

Source: Business World

Vibrant private sector engine of high and sustained growth

The Philippines needs to support its private sector by eliminating barriers to allow it to leave the middle-income economy category, the World Bank (WB) said.

At the Anti-Red Tape (ARTA)-World Bank Forum on Monday, World Bank Global Indicators Group Director Norman Loayza said middle-income countries will need about 5% per capita gross domestic product (GDP) growth to transition towards an advanced economy.

“Countries that are in the middle-income category, such as the Philippines, need about 5% of GDP per capita growth in order to escape what is called the middle-income trap,” Mr. Loayza said.

He said that the Philippines has achieved 3.4% per capita GDP growth in the last decade.

“This shows a gap, actually, between what the country should be growing at and how it has grown in the last 10 years,” he added.

“The key to escape this middle-income trap and to actually accelerate growth is the private sector. When you have a private sector that is dynamic, vibrant, and innovative, then you have growth,” he added.

He said in every country that has succeeded in developing its economy, the private sector has been the engine of growth.

“This is what we want to happen for the Philippines and for all developing economies,” he added.

He said that the government needs to support the growth of the private sector.

“And they can do it not by interfering, but actually by removing barriers. For instance, what ARTA does is removing red tape and putting enablers that facilitate business activity. These enablers are the public services that are essential for the private sector to grow,” he added.

These include having good roads, good infrastructure, protection against crime, and digital processes.

“All of these are important in the way that the government can provide support for the private sector to be that engine (of growth),” he added.

For the Philippines, he cited the need to focus on business entry, market competition, and business exit.

He said that focusing on the three will allow “most productive firms to remain and grow and the least productive firms to leave the economy and release resources and space so that other firms can enter, hire more workers, and therefore allow for higher growth.”

“The main goal really is to create good jobs for young people. The Philippines is going through a demographic transition and is blessed by having so many young people, potential workers. Many countries have used that demographic dividend in order to grow faster,” he added.

For its part, ARTA Secretary General Ernesto V. Perez said that it is set to launch the B-READY Reform Guidebook on May 21.

“It will be a guidebook … and we have formed working groups that we have formed into clusters so that all the 10 topic areas will be duly covered,” said Mr. Perez.

He said that the working groups will be composed of both government agencies and the private sector.

“As I emphasized earlier, we need stronger private-sector collaboration because we all know that the primary driver of economic growth is really the private sector; the government is simply there to provide the enabling environment,” he said.

“To implement those massive reforms, we need the support of the private sector under a whole-of-nation approach … This is needed not only to generate jobs and not only to have more foreign direct investment, but to really improve the lives of our countrymen,” he added.

Source: Business World

PHL fails to meet 2024 growth goal

The Philippine economy expanded by a weaker-than-expected 5.2% in the fourth quarter, bringing full-year growth to below the government’s target amid subdued consumption and lower farm output.

Data from the Philippine Statistics Authority (PSA) showed that gross domestic product (GDP) expanded by 5.2% in the October-to-December period, slower than the 5.5% in the same period in 2023.

This matched the 5.2% expansion in the third quarter, which was the slowest GDP since 4.3% in the second quarter of 2023.

Full-year growth came in at 5.6%, falling short of the revised 6-6.5% target. The 2024 GDP growth was slightly faster than 5.5% in 2023. 

“In 2024, we faced numerous setbacks like extreme weather events, geopolitical tensions, and subdued global demand, similar to the challenges we encountered in 2023,” National Economic and Development Authority (NEDA) Undersecretary for Policy and Planning Group Rosemarie G. Edillon said. “This suggests that these conditions may represent the new normal.”

On a seasonally adjusted quarterly basis, GDP posted growth of 1.8% in the fourth quarter from 1.5% in the previous quarter.

Among Asian countries that have released their data, Ms. Edillon said the Philippines had the third-fastest GDP growth in the fourth quarter, behind Vietnam (7.5%) and China (5.4%), and ahead of Malaysia (4.8%).

“While this is below our target, we continue to be one of the fastest-growing economies in both the region and the world. This is despite external and local challenges such as extreme weather events, geopolitical tensions, and subdued global demand,” Finance Secretary Ralph G. Recto said in a separate statement.

Ms. Edillon attributed the slower growth to the impact of a series of typhoons on the agriculture sector in the last few months of 2024.

Agriculture, forestry, and fishing (AFF) shrank by 1.8% in the October-December period, improving from the 2.7% contraction a year ago.

In 2024, agriculture declined by 1.6%, a reversal of the 1.2% growth in 2023.

“The agriculture sector has faced significant setbacks due to typhoons, droughts, and other climate-related disruptions,” Ms. Edillon said.

Separate PSA data showed agricultural output contracted by a record 2.2% to P1.73 trillion in 2024, brought by El Niño and then followed by La Niña. Farm output’s decline last year was the worst in almost three decades (26 years) or since the 7% contraction in 1998.

“The AFF sector, which contributes around 8% to GDP and provides livelihood for about one-fourth of the workforce, faced disruptions in crop production, livestock, and fisheries, further compounding its vulnerabilities,” Ms. Edillon said.

At the same time, the industry sector grew by 4.4% in the fourth quarter, slowing from 5.1% a year ago. For 2024, industry expanded by 5.6%, improving from 3.6% in 2023.

Construction and manufacturing were the main contributors to industry’s growth. Construction growth slowed to 7.8% in the fourth quarter from 9% in the same period a year ago, bringing the full-year growth to 10.3%.

“Manufacturing grew only by 3.1%. This performance has been hampered by subdued global demand due to geopolitical tensions and the slow recovery of advanced economies,” Ms. Edillon said.

“There are industries like semiconductors that still need to update their product offerings to meet changing demand.”

The services sector, which accounted for 62% of total GDP, expanded by 6.7% in the October-to-December period, slowing from 7.4% in the same period in 2023. For the full year, services growth stood at 6.7%.

LACKLUSTER CONSUMPTION

Meanwhile, household final consumption expenditure, which accounts for over 70% of the economy, grew by 4.7% in the fourth quarter, slowing from 5.2% in the third quarter and 5.3% in the same quarter in 2023.

For the full year, household consumption rose by 4.8%, slowing from 5.6% in 2023. Private consumption accounts for about three-fourths of the economy.

Ms. Edillon said household consumption was affected by the series of typhoons that hit the country in the fourth quarter.

“This one has dampened the growth momentum… Although we did see that there was an increased spending on travel, on transport, and on recreation and culture. But it was not enough to counter the slowdown in the other expenditure items,” she said.

Ms. Edillon said high prices of food, particularly vegetables, also weighed on consumption in the fourth quarter.

“We’re hoping that this is very temporary… We hope that the situation will stabilize soon,” she added.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said the latest GDP data show a renewed deterioration in household consumption.

“This (4.7% rise in consumption in the fourth quarter) marks a return to the 10-year-plus lows seen in the first half of last year, if we’re to exclude the anomalous COVID-19 years, with the full-year outturn of 4.8% representing the slowest growth since 2010,” Mr. Chanco said in a report.

“We’d like to reiterate that private consumption is likely to remain subdued even though inflation has normalized, and interest rates are now falling, as household balance sheets are still weak, plagued by low savings and high debt,” he added.

GOV’T SPENDING

PSA data also showed government final consumption expenditure (GFCE) rose by an annual 9.7% in the October-to-December period, a turnaround from the 1% decline in the same period in 2023.

In 2024, government spending grew by 7.2%, faster than 0.6% seen in 2023.

“We are quite happy with this performance of GFCE… That particular spending growth is actually quite respectable and in fact supportive of the entire economy,” Ms. Edillon said.

In a separate interview, Ms. Edillon said seven infrastructure flagship projects (IFPs) were completed last year and 13 more are on track to be finished this year.

Gross capital formation, the investment component of the economy, grew by 4.1% in the fourth quarter, sharply slowing from 11.6% in the same quarter in 2023.

For the full year, gross capital formation expanded by 7.5%, faster than 5.9% a year ago.

Ms. Edillon said that in general, the investments remain fine as there is still a huge backlog of infrastructure projects that will “tide us over until we get all these big investments coming in.”

“With respect to foreign investments, you still have geopolitical tensions. This is a big problem but we’re hoping these are very temporary,” she added.

Meanwhile, exports of goods and services grew by 3.2% in the fourth quarter, bouncing back from the 2.5% contraction in the same period a year ago, driven by a 13.5% rise in exports of services. Exports of goods fell by 4.6%.

For 2024, exports of goods and services expanded by 3.4%, faster than the 1.4% growth in the previous year.

Imports increased by 3.2% in the fourth quarter, faster than the 2% in the prior year.

For the full year, imports expanded by 4.3%, quicker than the 1% growth in 2023.

OUTLOOK

Meanwhile, NEDA’s Ms. Edillon said the government is confident on hitting at least the lower end of the 6-8% target for 2025 as government agencies are instructed to “think continuity and maximum impact.”

“Looking ahead to 2025, we want to regain our growth momentum driven by strategic investments and initiatives designed to strengthen resilience and lay the foundation for long-term, inclusive growth,” she added.

Mr. Recto said the government remains optimistic about the economic outlook this year.

“A lower inflation rate gives us more room to ease interest rates, which will further boost consumption,” he added.

Capital Economics Senior Asia Economist Gareth Leather said he expects the Philippine economy to grow by 6% this year.

“Strong and steady growth supports our view that the easing cycle will remain gradual over the coming months,” Mr. Leather said in a report.

The Bangko Sentral ng Pilipinas began its rate-cutting cycle in August last year, delivering a total of 75 bps worth of reductions.

“A key uncertainty over the coming year is whether and to what extent Donald Trump follows through with his threats to impose tariffs and clamp down on immigration. The Philippines is less vulnerable than other parts of the region to tariffs. However, Trump’s deportation plans could affect remittances from the US to the Philippines, which are equivalent to around 3.5% of the country’s GDP,” Mr. Leather said.

Source: Business World