Inflation still top risk to PHL growth

A reacceleration of inflation is still the biggest headwind to the Philippines’ economic outlook this year, which may pose a risk to the central bank’s easing cycle, a Moody’s Analytics economist said.

“The acceleration in inflation is the biggest risk for the Philippine economy and these are coming from both domestic and external factors,” Moody’s Analytics economist Sarah Tan said in an interview on Money Talks with Cathy Yang on One News on Wednesday.

“Domestically, I think the risk is that food inflation remains elevated due to frequent weather disruptions that could hurt domestic supply,” she said.

In January, inflation remained steady at 2.9% although food inflation alone accelerated to 4% from 3.5% in December.

Several storms hit the country late last year, which resulted in billions of pesos worth of agricultural damage.

“Externally, I think we worry that the tariffs imposed by the US could cause global inflation to rise due to the disruptions to supply-chain networks,” Ms. Tan said.

However, she said that the impact of the US President Donald J. Trump’s restrictive trade policies on the Philippines will likely be minimal.

“If we take a step back and look at the trade relationship between the Philippines and the US, it is quite clear that the Philippines’ trade deficit with the US is rather small, especially when you compare that with other economies, be it globally or with ASEAN (Association of Southeast Asian Nations) economies.”

“That really means that the Philippines is unlikely to be high on President Trump’s list,” she added.

Since taking office in January, Mr. Trump has already slapped a 10% tariff on Chinese goods as well as duties on all steel and aluminum imports beginning March.

On the other hand, Mr. Trump’s plan to impose reciprocal tariffs on all countries that charge duties on US imports may have a more significant impact on the Philippines.

“If there’s a universal reciprocal tariff that’s going to be imposed by the US, then that will hurt the Philippines because the duties that are levied on US imports into the Philippines is higher than the other way around,” she said.

“If there is a matching of tariffs, then that will make Philippine goods to the US more costly and less competitive, which will ultimately hurt our Filipino manufacturers and exporters.”

The US is typically the top destination for Philippine-made goods. In 2024, exports to the US were valued at $12.12 billion or 16.6% of total export sales.

“I believe the impact on the Philippines is rather small given the low trade exposure with the US. That said, there are indirect channels of impact on the Philippines,” Ms. Tan added.

RISKS TO EASING

Inflationary pressures from these risks could prompt the Bangko Sentral ng Pilipinas (BSP) to be more cautious about further easing, Ms. Tan said.

“If we have inflation accelerating again beyond the BSP’s target, that could delay the timing and magnitude of a potential policy easing in the Philippines,” she said.

“If that is the case, then the combination of borrowing costs and inflation staying higher for longer will be a recipe for further weakening in private consumption which is not great for the economy, given how it’s the main driver of growth.”

The BSP surprised markets after it left the benchmark unchanged at 5.75% at its Feb. 13 meeting. This after the central bank cut rates at three straight meetings since it began its easing cycle in August.

“It is a balancing act that the BSP has played. They have to balance both inflationary risks as well as the strength of the peso.”

“But that said, we don’t expect the pause to be felt very long. In fact, the next rate cut could come as early as in April, which is the next time the Monetary Board will meet,” she added.

Despite the pause, BSP Governor Eli M. Remolona, Jr. has said that a rate cut is still on the table at the Monetary Board’s next rate-setting meeting on April 3.

He also said the central bank is still on an easing path, signaling the possibility of up to 50 basis points (bps) worth of cuts this year.

“With inflation now largely back on target, and GDP (gross domestic product) growth still slightly below the government’s expectations, these will prompt the next rate cut sooner rather than later,” Ms. Tan added.

The Philippines’ GDP expanded by a slower-than-anticipated 5.2% in the fourth quarter. This brought full-year 2024 growth to 5.6%, short of the government’s 6-6.5% target.

Meanwhile, Ms. Tan said the upcoming midterm elections in May could provide a boost to spending.

“In general, elections, whether it’s national or midterm, they have to give a boost to the economy, especially through the consumption channel.”

“So, we will see spending on campaign-related goods and services increase. But at the same time, you know, all that increase in demand could also signal bad news for inflation,” she added.

Source: Business World

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

Moody’s unit sees Asia-Pacific growth sustained through 2025

Moody’s Analytics expects growth in Asia-Pacific economies, including the Philippines, to remain strong in 2024 and 2025, driven by improving trade, robust investment and sustained consumer spending.

In a report written by Steven Cochrane, chief APAC economist at Moody’s Analytics, the firm said the outlook for the region in 2025 is good, even though economic growth in China and India will likely slow over the coming year.

“Growth will accelerate in Southeast Asia, supported by trade, investment, consumption, generally stimulative fiscal policy, and, by early next year, easing monetary policy,” Cochrane said.

Moody’s Analytics has maintained its gross domestic product growth projection for the Philippines at 5.9 percent this year, slightly below the low end of the government’s six-to-seven-percent target.

The growth forecast for the Philippines for this year is the third highest in the region, after India (6.8 percent) and Vietnam (6.4 percent). This is followed by Indonesia (5.2 percent), Malaysia (5.1 percent) and China (4.8 percent).

Moody’s also kept its six percent forecast for 2025, which is also below the government’s target range of 6.5 to 7.5 percent but is still the third fastest growth in the region.

“The Philippines and Indonesia will not lag far behind Vietnam, but their economies are not as closely tied to the global economy. An aggressive push by both countries to improve their infrastructure will support high rates of growth,” Cochrane said.

Southeast Asia, particularly Malaysia and Vietnam, is benefiting from robust investment spending from local and international sources, he said.

Fiscal policy in the Philippines is also strongly focused on infrastructure development, which will continue to attract investors.

“But the actual execution of this policy has been uneven this past year,” he said. “The Philippines must stick to its plans and execute well.”

Geopolitical risks also add uncertainty to the outlook amid conflicts over the disputed West Philippine Sea and the current conflict in the Middle East. The outcome of the US November election will also impact the region.

“Should Donald Trump win the presidency, it would lead to higher tariffs on goods imported by the US from China and much of the rest of the world,” Cochrane said.

Higher tariffs on goods flowing into the US would hurt China and hit Asia’s small open economies such as Hong Kong and Singapore. Taiwan and Vietnam also face above-average risk.

“The less export-sensitive economies of Indonesia and the Philippines face much less risk in the Trump-election scenario,” he added.

The Philippine economy grew by 6.3 percent in the second quarter. This was faster than the 4.3 percent expansion in the second quarter of last year and the revised 5.8 percent growth in the first quarter of 2024.

Growth in the first half of the year stood at an average of six percent.

Source: Inquirer