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

BMI forecasts 6.3% growth for PHL in 2025

Further monetary easing is seen to prop up gross domestic product (GDP) growth in the Philippines, Fitch Solutions’ unit BMI said, as this would provide much-needed support to domestic demand.

“For the Philippines, we are expecting growth to accelerate from 5.8% in 2024 to 6.3% in 2025. The main driver is monetary policy loosening,” BMI Asia Country Risk Analyst Shi Cheng Low said in a webinar on Tuesday.

The government is targeting 6-8% GDP growth this year.

For the first nine months of 2024, growth averaged 5.8%. Preliminary fourth-quarter and full-year GDP data will be released on Jan. 30.

“Keep in mind that investment has been quite weak in the first quarter and third quarter. So about 150 basis points (bps) of cuts by the end of 2025 should help boost the Philippine economy going forward,” he added.

The Bangko Sentral ng Pilipinas (BSP) began its easing cycle in August last year, delivering 75 bps worth of cuts for 2024.

The central bank has signaled further easing this year as the current policy rate at 5.75% is still in “restrictive territory,” BSP Governor Eli M. Remolona, Jr. said.

Mr. Low said another growth driver is the rebound in private consumption as inflation continues to ease.

Headline inflation averaged 3.2% in 2024, within the 2-4% central bank target.

“We expect inflation to stay within the target for the rest of the year, obviously barring external shocks and also because the labor market has actually been improving,” he said.

This year, the BSP expects inflation to average 3.3%.

However, Mr. Low said their growth forecast for this year hinges on the expectation that US President-elect Donald J. Trump would not be aggressive in the implementation of his tariff proposals.   

“If that’s the case, we are going to lower our projections downwards. And I think that’s the biggest risk for the Philippines because the US is one of [its] biggest trading partners,” he said.

Mr. Trump, who is set to assume the presidency on Jan. 20, has pledged to impose import tariffs of up to 10% across the globe and 60% for Chinese goods.

“In sum, we expect the growth outlook to improve at least for the Philippines over the coming quarters,” Mr. Low added.

SERVICE BOOST

Meanwhile, HSBC in a separate commentary said the Philippines is expected to be one of the fastest-growing economies in Southeast Asia, mainly driven by a boost in services.

HSBC Global Private Banking and Wealth Chief Investment Officer for Southeast Asia and India James Cheo said the Philippine economy is “expected to deliver one of the strongest growths in the region this year.”

HSBC expects the Philippines’ GDP to expand by 6.3% this year and 6.7% in 2026.

“Philippine economic growth in 2025 will be driven by robust domestic consumption, a thriving business process outsourcing (BPO) sector, and increasing investments in digital services.”

“The country’s unique strength in service exports, including IT and BPO services, provides a buffer against global trade uncertainties and tariff risks.”

Data from the BSP showed the Philippines booked $37.4 billion worth of services exports in the first nine months, up 6.25% from a year earlier.

“Service exports and overseas remittances, which remain key economic pillars, will continue to contribute significantly to economic resilience and stability in the Philippines,” Mr. Cheo said.

He also said the country’s monetary and fiscal policies are “aligned to support growth while managing risks.”

Mr. Cheo said the central bank would likely deliver further rate cuts this year.

“We forecast the BSP to cut the policy rate to 5% in the third quarter of 2025, as it cautiously navigates external risks like potential volatility in the peso and the US Federal Reserve’s easing cycle.”

“On the fiscal side, the government’s infrastructure agenda remains a key growth driver, supported by revenue-enhancing measures,” he added.

Meanwhile, HSBC expects the peso to “face volatility from a stronger dollar but its high carry will be a buffer.”

“We are bullish on the peso and expect it to stay resilient at P59.8 against the US dollar by end-2025.”

The peso closed at P58.62 a dollar on Tuesday, strengthening by eight centavos from its P58.70 finish on Monday. Last year, the peso fell to a record-low P59-a-dollar level thrice.

MONETARY POLICY BUFFER

Meanwhile, Bank of America (BofA) Global Research in a separate report said economies in Southeast Asia might need to deploy varying policies to cushion the spillovers from Mr. Trump’s tariff plans.

“If trade shocks materialize, we reckon that the fiscal-monetary policy mix to cushion any softening of external demand may differ across countries,” it said.

“We think that policy mix may be more balanced in the case of Malaysia and Singapore, more skewed towards fiscal policies for Indonesia and Vietnam, and more skewed towards monetary policies for the Philippines and Thailand.”

For the Philippines, BofA said monetary policy “may have to play a greater role.”

“Inflation is at more manageable levels after the reduction of rice import duties in mid-2024, and BSP is less sensitive to FX (foreign exchange) movements compared with Bank Indonesia,” it said.

“As such, BSP could pursue deeper policy rate and RRR cuts. On the other hand, the government has less scope to raise spending significantly, with the fiscal deficit target for 2025 already above 5% of GDP and government debt at record high levels.”

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